The U.S. multifamily construction sector witnessed a staggering 30% decline in starts in May, falling to 316,000 units, the lowest start rate for buildings over five units since November 2024, according to CoStar’s analysis of Census Bureau data. Key factors such as elevated interest rates, economic uncertainty and the unknown impact of tariffs on construction costs fueled the slowdown. However, while the 30% decline grabs headlines, it may not fully reflect the market’s underlying health.
Multifamily development permits, a key indicator of future construction, rose by 1.4% in May and are up 13% compared to last year. This divergence between short-term uncertainty and long-term planning signals underlying industry confidence.
Strategic agility initiatives
In Q1 earnings calls, developers discussed leaning on strategic flexibility to adapt to shifting market dynamics. Transcripts of the earnings calls were provided by Bloomberg.
AvalonBay Communities’ plans to increase development starts to $1.6 billion in 2025 remain on track; however, the timing remains fluid, with most activity planned for later in the year following a modest $240 million in starts during Q1. The company acknowledged that recent tariffs could raise hard costs by about 5%, potentially rendering some projects infeasible. The organization also noted this impact is largely being offset by a broader market slowdown in new starts, which has improved subcontractor availability and could help mitigate cost pressures for near-term starts.
Similarly, Equity Residential said its operational performance is currently surpassing expectations. The company plans to stay focused on core performance metrics, such as leasing activity, pricing trends and overall demand, all of which are performing well and trending slightly ahead of projections.
Laying the groundwork for renewed development
The 30% stall in starts has grabbed the industry’s attention, and rightfully so, but it’s only part of the story. Permitting activity remains positive and demand runs strong. Demand is projected to grow at an above-average pace while completions are expected to drop by 45% this year, thinning the construction pipeline and driving vacancies downward through 2025, according to CoStar.
Of course, these projections remain subject to considerable uncertainty given the ongoing volatility in interest rates, trade policy and broader economic conditions. Still, with supply tightening and subcontractor availability improving, the slowdown in starts could set the stage for renewed development activity.
