U.S. multifamily construction starts dropped sharply in May as the industry copes with economic and tariff uncertainty, as well as elevated interest rates. Even so, permits rose, offering the sector what one trade group considers a positive sign.
Apartment starts were down 30% from April, according to monthly data released by the U.S. Census Bureau. The May start rate for units in buildings with five or more units was 316,000 — the lowest since November's 266,000. The Census Bureau identified the May numbers as preliminary.
The collapse in multifamily starts completely erased the improvement registered so far this year, according to economists at Wells Fargo. Unit starts had increased in February, March and April. However, multifamily groundbreakings in May were at their weakest since last fall.
Monthly multifamily start data is volatile historically, according to the National Association of Home Builders. For example, over the past 12 months, monthly total starts have ranged from 266,000 units in November 2024 to 454,000 units in April, according to census data.
While starts are down, new multifamily permits issued gained 1.4% in May from April and were 13% higher on an annual basis, the census data showed. This suggests that May's deterioration in multifamily construction starts "was more noise than signal," NAHB noted.
In their first-quarter earnings reports, multifamily real estate investment trusts talked about ramping up their development pipelines this year with the caveat that the White House's new tariff policies have added an element of uncertainty to construction costs.
That said, the existing supply of available multifamily units will continue to decline throughout the year, according to CoStar analysis, prompting the need for new developments.
The U.S. apartment vacancy rate peaked at the end of last year and is forecast to maintain downward momentum through 2025 and beyond, the CoStar report said. While rental demand is still growing at an above-average pace, completions are projected to fall about 45% this year based on a quickly thinning under-construction pipeline that should help vacancies recede.