What’s New: NMHC and NAA’s latest demand research estimates we need to build 4.3 million units by 2035—600,000 to meet the current apartment shortage, and an additional 3.7 million 2035 to keep up with annual projected demand.
Where It Stands Now: Multifamily development dropped after the Great Recession, resulting in our current apartment shortage. Development has begun to ramp up, but demand has also been high. The number of multifamily units under construction has been steadily climbing, reaching an historic high of 841,000 (seasonally adjusted) in June 2022.
Why It Matters: The number of units under construction will gradually turn into completions. These completions are dependent on the length of time it takes to actually build—if there are 900,000 units under construction and it takes an average of 12 months to build, there would be 900,000 new deliveries in the next year. But if the average development timeline is 36 months, there would only be 300,000 new deliveries in the next year.
A variety of factors have lengthened development timelines recently, causing a buildup of units in the “units under construction” category:
- Virtually all (97%) of respondents to the June NMHC Construction Quarterly Survey are experiencing construction delays.
- Labor and materials shortages existed pre-pandemic but have been exacerbated in recent years.
- NMHC/NAHB research found that NIMBY opposition, common in multifamily development, adds an average of 7 months to a project timeline.
The Bottom Line: Looking just at the units under construction presents an incomplete picture. NMHC’s July Market Tightness Index indicated improving conditions, and while the number of units under construction does look high, other construction metrics, particularly starts and completions, show a much more moderate increase. The lack of inventory is reinforced by increasing rental rates and historically low vacancy numbers.
What’s Next: The next NMHC Market Trends will provide a further overview of development timelines as well as other market metrics such as rent/vacancy rates and sales volume. NMHC members can sign up to receive Market Trends here.