Fewer multifamily construction projects expected to get underway in 2024

Interest rates, inflation and general uncertainty were expected to curb multifamily building across the country last year, and early data shows that it did.

Nationwide, builders were underway with about 11.6% fewer units for the first three quarters of 2023, signaling a cooling in a category that includes apartments, rental homes, senior living and student housing. Reporting around multifamily building lags slightly, creating a comparative range between three quarters rather than four.

While North Texas tends to buck national trends, the narrative around projects officially getting underway is drastically different in two Dallas area regions, according to a report from Yardi Matrix published in January.

Dallas-North had a total of 16,515 multifamily starts in 2022, and as of Q3 2023, the area was pacing 48.2% ahead of where it was the previous year, indicating at a minimum that units were being built at an even faster pace.

In contrast, Yardi’s Dallas-Suburban region was down 34.2% in Q3 2023 compared to where it was at the same time in 2022, a year that saw 14,651 multifamily units get underway.

Yardi Matrix divides the Dallas area into two separate designations.

Dallas-North for the company includes Dallas County essentially north of Interstate 30, Collin County; an eastern tranche of Denton County that includes Frisco, Little Elm, Aubrey and Pilot Point; and Rockwall County north of I-30. Key markets include part of Dallas, Plano, part of Garland, Carrollton, Richardson, McKinney, Frisco, Addison, Allen, part of Mesquite, The Colony and Farmers Branch.

Its definition of Dallas-Suburban includes southern portions of Dallas, Rockwall and Hunt counties below I-30, along with Ellis and Kaufman Counties. Communities of note include Balch Springs, Coppell, part of Dallas, Denton, Desoto, Duncanville, part of Garland, Grand Prairie, Irving, Lancaster, Lewisville and part of Mesquite.

Yardi analysts project that multifamily construction starts will continue to slow in 2024 as the planned development pipeline flatlined last year.

But cautious optimism may be warranted for investors and developers, said Megan Smith, managing director of multifamily for Dallas-based Trammell Crow Residential.

“There are definitely more conversations about capital deployment and finding opportunities for that,” she said.

While 2024 may be more reserved, there should be a lot more momentum moving into 2025 and 2026, said Smith, who joined Crow Holdings Capital in 2008 after she graduated from Texas Christian University.

Trammell Crow Residential focuses on two apartment products in its multifamily platform: Alexan, a luxury offering, and Allora, what it calls an “attainable” housing option.

“Supply is a consideration in all of our markets, and it is for Dallas as well. With Dallas fundamentals, we have a strong market. While it ebbs and flows, we’ll be able to ride the wave,” she said.

The outlook comes as the U.S. saw a record-number of apartments completed in 2023, accounting for the largest number of new apartment units added in 36 years, according to RealPage. The rental home space has also become more crowded, with Dallas-based Invitation Homes reigning in its projected rent growth to deal with the competition.

The surge in new stock coming online bodes well for renters, who are unlikely to see pre-pandemic rents, but are also unlikely to be hit with drastic rent spikes in the next year or two.

Smith said that 2024 and even 2025 may see softening among rents in some Dallas-Fort Worth submarkets due to the abundance of supply and what’s in the pipeline.

“Coming out of 2025 and into 2026, we’ll start to see (multifamily) stabilizing, and there’s going to be a wave of rent growth that we’re capturing going into 2026 and 2027 due to the supply coming online. For now, you’re seeing negative to minimal rent growth,” Smith said.