Multifamily construction activity appears to be stabilizing after three years of decline, even as developers remain cautious in the near term, according to the National Multifamily Housing Council’s latest quarterly survey of multifamily construction and development firms.
Multifamily starts were relatively unchanged over the past three months, marking a potential pause in the sharp pullback that has defined the sector for the past three years. Thirty-six percent of respondents said their company started more projects compared with three months earlier, while 43% reported no change. About one-quarter said they started fewer projects.
“Starts have pulled back drastically over the past two years amidst high interest rates and slowing rent growth,” NMHC chief economist Chris Bruen said. “Yet, builders and developers are currently reporting lower costs for construction materials and labor and have expressed optimism about their long-term prospects.”
Among firms reporting a decline in starts, the most commonly cited constraint was economic feasibility, identified by 18% of respondents. Other factors included low rent growth (14%), broader economic uncertainty (12%), and the availability or cost of construction financing (11%).
Conditions are improving modestly for projects already underway. Nearly one-third of respondents said construction delays had decreased compared with three months earlier, while just over half reported no change. Only 8% said delays had increased.
Cost pressures have also eased in the near term. A third of respondents said construction labor costs had either declined or increased at a slower pace than inflation over the past three months, compared with just 7% who reported labor costs rising faster than inflation. The remainder said labor costs were increasing roughly in line with inflation.
Material costs showed a similar pattern. One-quarter of respondents reported that material costs had declined or grown more slowly than inflation, while only 5% said material costs had risen faster than overall inflation.
Looking ahead, however, developers expect cost pressures to re-emerge. Thirty-five percent of respondents anticipate labor costs will increase faster than inflation, while 20% expect labor costs to rise more slowly. Expectations for materials were similarly split, with 35% forecasting faster-than-inflation increases and 25% anticipating slower growth.
Despite lingering near-term caution, longer-term sentiment has improved. While 77% of respondents expect construction conditions to remain unchanged over the next three months, 70% believe conditions will improve over the next six to twelve months.
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