The pace of new multifamily housing construction slowed during the third quarter as developers faced rising expenses, stagnant rent increases, and broader economic unease. According to the latest data from the National Multifamily Housing Council, 29% of firms reported fewer construction starts than they had three months earlier, marking a sharp increase from 20% in June and 12% in March. Meanwhile, only 24% of respondents saw construction activity rise, while those reporting stable conditions dropped from 55% to 41%.
Financial constraints drove the slowdown. Developers cutting back projects cited economic uncertainty and limited financial feasibility as their top concerns, each mentioned by 65% of those scaling back. Weak rent growth—now reported by 59% of respondents, up from 42% in June—also played a key role. Another 24% pointed to construction financing availability and cost.
Rising labor and material costs further tightened budgets. The share of firms reporting labor cost pressures tripled to 24% from just 8% in June, while material cost concerns rose from 8% to 18%. Higher borrowing costs have added to these pressures, as rising interest rates make fewer projects financially feasible, particularly when developers cannot rely on stronger rent growth. The Federal Reserve added another hurdle by raising the federal funds rate by 25 basis points to a range of 3.75% to 4%, its first increase since July 2023.
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The slowdown extended beyond traditionally fast-growing regions. In September, 41% of developers in the Southeast, including Atlanta, Charlotte, and Orlando, reported fewer starts, down from 75% in June. Texas and the Southwest each accounted for 24% of respondents indicating fewer starts, while the Rockies fell from 42% to 12%. The Mid-Atlantic, Midwest, and Northeast each accounted for 6%. Nationally, the share of developers reporting slowdowns climbed from 17% to 29%. Many Sun Belt metros are still working through raised supply, weak rent growth, and widespread concessions. Yet these markets are still favorites among investors due to their job creation and in-migration prospects.
Cost pressures are worsening. One-third of respondents said material expenses rose faster than inflation during the previous three months, up from 22% in June and 10% in March. Half said material costs tracked inflation, while 12% recorded a real decline. Labor costs followed a similar pattern. Twenty-two percent said labor expenses outpaced inflation, compared with 8% in June and 5% in March. Another 53% said labor costs tracked inflation, down from 67% in June. Among all respondents, 51% repriced developments that had been on hold for three to six months, with 37% raising project pricing and 14% making downward adjustments. The balance was reversed in June, when 17% priced projects upward and 38% lowered pricing.
Outlook remains mixed. Over the next six to twelve months, 39% of developers expect labor costs to outpace inflation, while 38% anticipate faster growth in material expenses. In both categories, just 14% foresee costs declining or increasing more slowly than inflation. Still, half of respondents expect overall construction conditions to improve over the next six to 12 months, up from 46% in June, while near-term sentiment remained weaker, with 21% anticipating a decline during the next three months.