More Multifamily Developers Delay Projects That Are No Longer Economically Feasible

Nearly all of the apartment developers who responded to the National Multifamily Housing Council’s Q2 2022 survey of apartment construction and development activity, conducted from June 6 to 23, said they’ve experienced delays during the second quarter.

While most respondents cited permitting and materials sourcing/delivery as primary factors for delays in new construction, the percentage of respondents who said they were delaying new starts because the projects are no longer economically feasible surged to 38%—a 20% increase over NMHC’s Q1 2022 construction survey.

More than 80% of the respondents to the quarterly survey of developers and construction firms said their deals for materials have been repriced up over the past three months. Most said that labor costs have increased, with 40% saying the cost of labor has increased more than they expected.

Of the 97% of respondents who reported experiencing construction delays, 93% reported delays in starts and 83% reported delays in permitting. The percentage of respondents who said municipalities were taking 5-6 months or longer to issue building permits increased to 64% in Q2, up from 55% in Q1.

NIMBYism also is delaying new construction as well as municipalities that are increasingly emphasizing ESG and requiring projects to address sustainability and affordability, among other requirements.

Nearly half of the respondents in the NMHC survey said municipal jurisdictions now are imposing additional project requirements unrelated to project construction, including impact fees, sustainability requirements, affordability requirements and public infrastructure.

The delays come at a time when the multifamily pipeline is the busiest it’s been in nearly four decades: there are 824K units in the development pipeline; deliveries of 450K multifamily units were scheduled for this year, GlobeSt.com reported.

According to the NMHC survey, prices for building materials including exterior finishes, roofing, electrical components, appliances and insulation all increased by double digits in Q2, while the roller coaster of lumber prices dipped slightly by 5%.

A majority of respondents said they’re pre-purchasing and stockpiling building materials to avoid having them repriced up, and many said they were making design changes or switching to alternative building materials to reduce costs or work around shortages.

Most of the respondents to the NMHC quarterly survey said there is a greater focus on escalation clauses and acceptance of higher escalations.

According to Associated Builders and Contractors data, overall construction costs increased 22% YoY as of May 2022.