ApartmentsNational Housing Market Outlook

How to Ride the Apartment Supply Wave

Steve Basham

Steve Basham

January 19, 2024

New apartment construction is booming. Nearly 1 million units are under construction at the start of 2024, close to all-time highs in the US. Around 670,000 units are projected to be delivered this year.

The busy development pipeline is spurring more communities to offer incentives or concessions like free rent. In July 2022, less than 5% of units for lease came with concessions; today, more than 12% do.

How will the new apartment supply impact the national and metro levels?

To understand the new supply picture, we combined the past 12 months of deliveries with units currently under construction to estimate the total new apartment supply.

Investing in the apartment market? Our Rental Communities package helps clients track apartment market fundamentals to devise investment and growth strategies. For custom solutions, our consulting team helps clients set revenue projections and strategies for new apartments while also shining the light on current and upcoming supply and competition.

Nationally, the total new apartment supply amounts to about 1.4 million units. That’s a huge burst of new apartments entering the market. Over the past decade, year-end total new apartment supply in the US has averaged around 980,000 units.

Several Sunbelt markets are grappling with the double whammy of heavy deliveries and intense ongoing construction, impacting market fundamentals

  • The Dallas metro area leads the nation in apartment development. More than 20,100 units opened in 2023, and nearly 55,200 more are under construction at the start of 2024. Together, they account for a total new apartment supply of about 75,000 units. While several thousand units are underway in downtown Dallas, most of the new construction is in northeast suburbs, including Allen, McKinney, Frisco, and Denton.
  • Phoenix is experiencing an unprecedented increase in apartments, with over 17,100 units delivered in the past year. Around 51,000 more units are under construction, bringing the total new apartment supply to more than 67,000 units. This development is concentrated in Buckeye and Goodyear in the West Valley. The rapid increase in supply has outpaced apartment demand, resulting in rent losses and rising concessions across the metro.
  • Rounding out the top five metros for total new apartment supply are New York (10,500 units delivered last year; 53,300 under construction), Austin (17,000; 43,000), and Atlanta (20,000; 34,300).

Which metros are best prepared to absorb a significant influx of new apartments?

To answer this question, we compared each metro’s 2023 supply growth (completions as a percentage of inventory) against our annual Burns Apartment Rent Index™, which tracks apartment asking rent growth.

Nationally, apartment inventory grew by +2.3% over the past year, while rents rose by +0.6 % YOY. For comparison, annual inventory growth historically averages around +1.2%.

A handful of metros outpaced average national rent growth, even as their apartment supply grew faster than the country as a whole:

  • Charleston, South Carolina, was one of the most resilient apartment markets facing heavy new deliveries. Apartment inventory grew by +3.5%, delivering roughly 2,900 new units in 2023. Despite competition from all those new units, rents increased by +2.4%, four times the US average.
  • Columbus, Ohio, was another outperformer. Approximately 5,500 new units grew apartment inventory by 3.2% over the past year, but rents still rose at a healthy +2.5%.
  • Denver and Minneapolis posted rent growth of around +1% in 2023, while apartment supply grew by about +3% over the same period.

While 2024 and 2025 should be the busiest years on record for new apartment construction and deliveries, the pipeline will thin out after that.

We expect the surge in housing apartment construction to be temporary. Current permitting numbers suggest development will slow once the current wave delivers.

As interest rates rose and apartment fundamentals softened, financing for new apartment developments evaporated.

90% of respondents to our 4Q23 Burns Apartment Developer Survey told us that equity and debt financing for apartment development has become more difficult to find in recent quarters. About two-thirds of developers expect apartment starts to decline next year, and one-third expect starts to slow by more than 50%.

As development financing dries up, multifamily permit numbers point to further slowing. Nationally, multifamily permits are down more than -20% YOY.

In some areas, the slowdown is even more pronounced:

  • In San Francisco, which has struggled to rebound in the post-Covid era, multifamily permits fell -46% YOY.
  • Tech layoffs have developers nervous in Seattle, where multifamily permits are also down -46% YOY.
  • New York ranks among the top 3 markets for total new apartment supply, but multifamily permits are down -39% YOY.

Forward-looking apartment operators must prepare for two impending and somewhat contradictory realities. In the short term, expect an influx of new apartments as apartment construction remains near all-time highs. But once this immediate development wave crests, a multi-year period of light deliveries should follow. Development financing is scarce, but new apartment communities that break ground in 2024 and 2025 will deliver into a late-decade environment of minimal competition from new supply.

The apartment rental market may be cooling, but opportunities remain for the well-informed. Our Research and Consulting teams offer clients the latest insights into market trends, backed by our comprehensive forecasts that span the for-sale, for-rent, and building products markets. Reach out for assistance in navigating the dynamic trends of your specific market.


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About The Author

Steve Basham
Steve Basham
Research Manager, Rental Surveys
Steve leverages 15+ years of real estate experience to deliver insightful, timely analysis and recommendations for JBREC’s clients.

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