- Supply chain issues and high interest rates continue to challenge the multifamily sector.
- Multifamily starts dropped 25% in 2024 and are expected to decline another 11% in 2025.
- NAHB’s Multifamily Occupancy Index rose to 81, signaling strong demand.
- A low unemployment rate could drive young adults to move out and rent.
- Rent declines may reverse as new construction slows.
According to the National Association of Home Builders (NAHB), the multifamily housing sector is expected to face more headwinds in the first half of 2025.
Stormy Weather
Supply chain disruptions, labor shortages, and elevated interest rates remain developers’ top concerns. Rising material costs and a lack of available developed lots are also complicating new projects, per GlobeSt.
Despite these challenges, the multifamily market is expected to stabilize by late 2025. While overbuilding has already begun to slow, around 1M multifamily units are under construction—the highest level since 1973.
Multifamily starts fell 25% in 2024 and are projected to decline another 11% this year, dropping from 355K units to 317K. But in 2026, starts are forecasted to rise modestly to 336K.
Builders Still Cautious
NAHB’s latest Multifamily Production Index (MPI), which measures builder sentiment, registered at 48 in Q4. Although this is an improvement from Q3, the reading remains below the breakeven threshold of 50, indicating developers are still uncertain about the market’s near-term trajectory.
In contrast, the Multifamily Occupancy Index (MOI) shot up to 81, suggesting that existing properties continue to see strong leasing demand.
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Young Renters Driving Demand
One potential tailwind for multifamily recovery is the nation’s low unemployment rate. CoreLogic’s senior principal economist Molly Boesel noted that many young adults (ages 25–34) living with their parents may soon enter the rental market.
High home prices and limited single-family inventory make homeownership less attainable, leading more young adults to rent instead.
Boesel, speaking at the NAHB International Builders’ Show in Las Vegas, pointed out that multifamily rents slipped by 1% in late 2024. However, the slowdown in new construction could reduce vacancy rates and support higher rents moving forward.
Looking Ahead
While 2025 is shaping up to be a transitional year for the US multifamily sector, industry experts anticipate a return to stability by year-end.
Strong demand fundamentals, a steady job market, and a pullback in new supply could help offset current challenges, setting the stage for renewed growth in 2026.
