Permits for new multi-family units down 30% due to housing oversupply concerns

Builders are increasingly shying away from new construction projects, indicating a growing housing glut.

According to Redfin, Builders obtained permits to build 13 multi-family units per 10,000 people this year, down from an average of 18 between 2021 and 2023.

That's a nearly 30% drop from just last year.

A multi-family unit is defined as a building that consists of five or more apartments, and the number of permits being issued has now fallen below its 10-year historical average.

Redfin says high interest rates have made construction projects more expensive, and a recent building boom may be deterring firms from seeking additional permits.

Of the apartments completed late last year, just 47% were rented out within three months—indicating that some metro areas are now suffering from oversupply.

Not all states require permits for multi-family housing projects, but among those that do, most are being granted in Cape Coral, Florida, as well as Austin, Texas.

What this means for renters

The current supply glut is driving a slowdown in rent rises, with asking prices barely edging up 1% over the past 12 months. Redfin analysts believe this may not last, though.

"Prospective renters should be aware that now may be a better time to sign a lease than later," said Redfin senior economist Sheharyar Bokhari.

"Property owners might start jacking up rents again once all of the new apartments hitting the market fill up with tenants and there’s no longer so much supply, which could be the case in a year or two," he added.

Aggressive construction during the pandemic has already pushed rental prices lower.

A Redfin analysis of 33 metro areas shows that markets with the highest drops in rent prices are the ones that saw the biggest supply increases between 2021 and 2023.

In Jacksonville, where 23 multi-family units per 10,000 people were approved over this two-year period, median asking prices fell by 10% in the year to May. Austin, where construction also surged, reported a 7% decline.

By contrast, rents continue to rise in areas with a lower number of permits—under 7 per 10,000 people on average.

The Fed has pushed interest rates up in an effort to bring costs back under control, but that could prove counterproductive when it comes to rent.

Although there's enough supply for now, the slowdown in newbuilds could eventually create a supply squeeze that would once again push asking rent prices higher.