Multifamily Construction Outlook: Q4 2025

ByTrinity Street Capital Partners

Key Trends & Forecasts

 

  1. Construction Starts & Supply Pipeline

  • Fannie Mae reports that multifamily housing starts peaked in Q2 2025 at an annualized rate of roughly 390,000 units, down to 366,000 units in Q1 2026. The forecast for Q4 2025 shows a gradual decline following this peak.
  • According to NAHB, starts declined 25% in 2024 to around 355,000 units, and are expected to fall another 11% in 2025 to approximately 317,000 units, before rebounding around 6% in 2026.
  • Yardi Matrix projects strong completion numbers—508,089 units forecasted for 2025—despite sharply lower starts, thanks to the elevated pipeline of in-progress builds.

Insight: Q4 2025 will likely be defined by a supply transition phase—new starts are easing off, but a backlog of completions will still yield substantial deliveries.

 

  1. Developer Sentiment & Occupancy

  • The NAHB Multifamily Production Index (MPI) rose to 48 in Q4 (scale: 50 = neutral), showing mild improvement in builder confidence—but still below a healthy threshold.)
  • The Occupancy Index (MOI) climbed to 81, signaling continued strong occupancy levels even amid cost pressures.)

 

  1. Market Conditions: Demand & Pricing

  • Cushman & Wakefield identifies that Q2 2025 absorption hit over 116,000 units, one of the strongest quarters on record. Deliveries slowed 22% year-over-year, and under-construction volume dropped to its lowest since 2016. Reports show that the apartment absorption rate in Q4 2024 was the highest since at least 1985. High mortgage rates and tight home-buying conditions continue pushing renter demand—and rents—higher.
  • Rising material costs—particularly due to tariffs like the 25% steel tax—are driving up construction costs and discouraging new high-rise multifamily developments
  • Twin Cities developers have pulled back significantly: multifamily permits plunged from 15,500 in 2022 to just 5,000 in 2024. Unit costs of $320,000–$340,000 make many projects financially unviable without subsidies.
  • Barron’s underscores an easing of the previous supply glut, with deliveries falling 28% since August 2024. As demand rises and new construction fades, rents are set to climb, with projected annual increases of 5% to 10%.

 

Expectations for Q4 2025

 

Construction Activity

  • The quarter will likely see continued softness in new starts, in line with Fannie Mae and NAHB projections.
  • Completions remain elevated due to prior starts and long build cycles.
  • Overall supply growth will moderate, entering a downshift from earlier highs.

 

Market Fundamentals

  • Absorption remains strong, supported by tight occupancy rates and sustained renter demand.
  • Rent growth resumes momentum, particularly in markets with constrained new supply.
  • Builder confidence remains tentative, but stabilizing as starts begin to bottom out.

 

Risks to Watch

  • High financing and material costs, exacerbated by tariffs, could hinder new development.
  • Policy changes affecting immigration or trade could further escalate construction costs or delay projects.
  • A sharp economic downturn could reverse current demand trends and pressure occupancy/rents.

 

A Final Word

 

  • Investors & owners in well-positioned, stabilized properties stand to benefit from tightening supply and rising rents.
  • Developers may need to focus on markets where demand fundamentals offset high-cost headwinds—smaller, tertiary metros or markets with lower barriers to development might offer relative resilience.
  • Policy stakeholders might need to consider incentives or materials-cost relief to bolster new housing supply and affordability.