Starts jump nearly 30% YOY for buildings with 5 or more units

April saw a surge in multifamily housing starts, with buildings of five or more units jumping 11.1% month-over-month and 28.8% year-over-year to an annualized rate of 420,000; however, the total units under construction decreased by 20.2% YOY. While some developers express concern about the impact of potential tariffs on construction costs and project feasibility, others report minimal pricing changes thus far, indicating a mixed outlook for the sector.

Analysis

The U.S. multifamily housing sector presented a mixed picture in April, characterized by a significant 11.1% month-over-month and 28.8% year-over-year surge in starts for buildings with five or more units, reaching a seasonally adjusted annual rate of 420,000. This contrasts sharply with a 20.2% year-over-year decrease in the number of multifamily units under construction, which totaled 733,000 at month-end, signaling a potential contraction in future supply despite the monthly starts increase. Permitting activity for multifamily projects also showed diverging trends, with a 2.6% year-over-year rise to an annualized rate of 431,000 but a 4.4% decline from March. Overall housing starts were up 1.6% month-over-month to 1.4 million but down 1.7% year-over-year, with single-family starts notably weaker, falling 12% year-over-year. Developers continue to navigate a challenging environment marked by difficulties in securing equity, rising interest rates, and increasing uncertainty over potential U.S. tariffs. Industry participants like PEG's co-CEO explicitly noted these cost pressures, while the impact of tariffs remains a point of contention, with some developers anticipating significant effects and others, such as Middleburg Communities, observing minimal price changes to date on specific projects.

Key Decisions for Investors

• Investors should closely monitor multifamily permit issuance and the trend in units under construction, as the April starts figure may be an outlier rather than an indicator of sustained pipeline growth, especially given the 20.2% YoY drop in active construction.
• Consider the heightened risk profile for multifamily developers and associated investments, including companies like PEG, due to persistent challenges in equity financing, elevated interest rates, and pronounced uncertainty regarding the impact of potential trade tariffs on construction costs and project viability.
• A cautious approach towards new investments in the multifamily development sector is advisable, pending greater clarity on the trajectory of construction costs, the actual impact of tariffs, and the overall stability of the housing market, recognizing the expressed volatility of monthly housing data.