NAHB Special Report: Stabilized Construction Rates on the Way
Economists at the International Builders' Show predicted that apartment starts will decline before returning to positive trends by year end.
The Trump administration kicked off 2025 with a brand new vision for the country and a flurry of executive orders intended to reset the playing field—but they are also creating mass uncertainty across real estate. Key housing issues such as immigration reform, tax cuts and tariffs were front and center at the National Association of Home Builders’ International Builders’ Show in Las Vegas. In one panel, two economists shared a mainly optimistic outlook for the next 12 months.
The big take-away from the session led by Molly Boesel, senior principal economist at CoreLogic, and Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis: Supply-chain problems and high interest rates are expected to hamper the multifamily sector in the first half of 2025. But, the market should stabilize later this year as more deals pencil out. They also expect the economy to grow a little bit slower in the coming months, but there is no recession in their forecast.
According to Nanayakkara-Skillington, the new administration’s desire to look at costly and inefficient regulations affecting multifamily development is good news.
“It takes a long time to get this done, but we are hoping the new administration will make this a priority,” she told attendees. “One of the ways to tackle the affordable housing shortage is to remove some of the regulations.”
The election will continue to impact multifamily in a number of ways from the reduction of costly regulatory policies to the effects of illegal immigration enforcement. Image courtesy of NAHB 
According to NAHB-NMHC research, government regulations can impact as much as 41 percent of multifamily development costs. Image courtesy of NAHB 
Image D Delinquency rates rise across capital sources due to higher interest rates, changes in property market fundamentals and uncertainty about property valuation. Image courtesy of CoreLogic
Construction stays slow
December was a solid month for apartment starts even though the multifamily sector ended the year down 25 percent in terms of total starts. In December, and on a three-month moving average basis, there were 1.7 apartments completing construction for every one apartment starting construction.
“NAHB is projecting that multifamily construction will decline again in the first half of 2025 before moving back to long-term trends toward the end of the year as the market works though a substantial number of units under construction,” said Nanayakkara-Skillington.
NAHB is expecting multifamily starts to fall 11 percent this year to a rate of 317,000 while increasing 6 percent in 2026 to 336,000. In the most recent NAHB Multifamily Market Survey, confidence in the market for new multifamily housing reflected mixed results. While the Multifamily Production Index increased seven points to 48 year-over-year, it’s still below the break-even point of 50.
“The MPI is reflecting cautious optimism with the reading of 48, and this is what we would expect given that multifamily starts declined in 2023 and 2024,” said Nanayakkara-Skillington.
Similarly, the Multifamily Occupancy Index had a reading of 81. This is up four points year-over-year. It’s an indication that existing apartment owners are positive about occupancy.
Beyond supply chain problems and high interest rates, according to Nanayakkara-Skillington, the overall housing market continues to face challenges with the cost and availability of labor and developed lots, along with high building material prices.
Factors favoring rentals
On a positive note, the industry is supported by a low national unemployment rate and a potential influx of young adults as they enter the housing market.
“Currently, the number of young adults ages 25 to 34 living with their parents is at elevated levels,” said Boesel. “Pent-up demand for multifamily housing will continue to build as these young adults move out of their parents’ homes.”
The country is experiencing low home affordability as the 30-year fixed mortgage rate remains close to 7 percent. Many renters are choosing to stay in multifamily housing.
“Another factor suppressing trade-up options for renters is that single-family housing inventory remains unseasonably low, because most home owners have mortgage rates below five percent and are electing to stay put,” she added.
According to Boesel, high supply helped push multifamily rents down 1 percent at the end of 2024. But, as starts and completions slow, vacancy rates are expected to fall and rents should increase.
The multifamily market is also experiencing a rise in delinquency rates. Boesel said that delinquency rates are rising across capital sources due to higher interest rates, changes in property market fundamentals and uncertainty about property valuation. Outcomes will depend on deal vintage. Deals coming to maturity doubled from 2023 to 2024 and stays high in 2025.
