The National Association of Home Builders (NAHB) is expecting a weakened multifamily construction market this year driven by regulatory and supply-side dynamics along with slowing rent increases and higher vacancy rates. It will be short-lived, however, stabilizing in 2022.  

After increasing steadily for four years, rent growth flattened in 2020. Danushka Nanayakkara-Skillington, NAHB's Assistant Vice President of Forecasting and Analysis told a press conference as part of the virtual 2021 NAHB International Building Show "Due in part to pandemic-related issues, rent growth in December 2020 was up just 0.4 percent from a year ago."

NAHB chief economist Robert Dietz said construction in the multifamily sector is performing better than nonresidential construction, but developers are facing headwinds. "Shortages and delays in obtaining building materials, rising lumber and OSB prices, labor shortages and a more ominous regulatory climate will aggravate affordability woes and delay delivery times."

Four of the top five multifamily markets, as measured by the number of constructions permits, posted yearly declines from November 2019 to November 2020. The New York-Newark-Jersey City region, the largest in the nation, registered a 14 percent drop in permits. Houston was down 10 percent; the Los Angeles area fell 16 percent and Dallas-Fort Worth posted the sharpest decline at 46 percent.  Meanwhile, Austin, the No. 2 market in the nation, saw permits increase by a robust 54 percent.

Census data shows that 34 percent of total multifamily construction last year was in lower density, lower cost markets. "These areas have outpaced higher density markets over the past four quarters, and we anticipate this trend will continue this year," said Dietz.

Multifamily housing starts are expected to fall from 392,000 units in 2020 to 349,000 units this year, a shortfall of 11 percent. But production is expected to grow by 5 percent in 2022, to 365,000 units.