Homebuilders conflicted on 2025 apartment construction outlook

The National Association of Home Builders (NAHB) released its Multifamily Market Survey that covers results from the fourth quarter of 2024. The survey also highlighted mixed sentiment among homebuilders in terms of multifamily construction this year.

The organization redesigned the survey to align with other NAHB sentiment surveys. Index values are evaluated on a scale of 1 to 100, with 50 serving as the break-even point.

According to the Q4 2024 survey, production sentiment rose year over year by seven points to 48. This reflects continued apprehension among homebuilders for building new multifamily units. And rising construction costs and labor changes are present.

Constructions costs, for example, could rise by 4% to 6% this year due to tariffs imposed by the Trump administration, according to analysis from CoreLogic. The analysis also shared that homebuilders could face an increase in material prices of 10% or more.

The NAHB sent a letter to President Trump to request tariff exemptions on building materials from Canada and Mexico.

“Since January 2021, inputs to residential construction saw price increases of just over 30%. Our sector relies heavily on a diverse and cost-efficient supply chain for building materials such as lumber, steel, gypsum and aluminum,” NAHB wrote.

Labor shortages are also applying pressure to construction efforts. The Trump administration’s immigration policies could slash around 30% of the construction labor force, according to National Immigration Forum data.

Builders still favored some apartment types over others in terms of construction. Garden and subsidized apartments topped the sentiment survey at 52 points. Mid- and high-rise apartments posted the lowest confidence rating at 39 points.

“Multifamily developers are slightly less pessimistic than they were at this time last year, but supply-chain problems and high interest rates remain serious barriers to a stronger market,” said Tom Tomaszewski, president of The Annex Group and chairman of NAHB’s Multifamily Council.

Despite that, renters are still occupying multifamily properties at a high rate. The NAHB’s Multifamily Occupancy Index (MOI) posted an index reading of 81 out of 100, which indicates that apartment owners are feeling positive about occupancy in 2025.

The MOI component to measure subsidized units posted a 3-point increase to 91 — the highest confidence rating among all apartment types. Tomaszewski said that “occupancy rates for owners of rental properties have remained solid, although they are struggling with high operating costs.”

NAHB expects multifamily construction to decline further in 2025 as construction material and labor costs ramp up. And builders may experience more obstacles in terms of credit use. The association released a separate report on Friday showing that borrowers and lenders experienced tighter credit constraints for land acquisition, development and construction (AD&C) loans in Q4 2024. The Fed’s senior loan officer survey showed a similar trend as well.