Some 84% of multifamily developers reported construction delays in the fourth quarter of 2023 – a slightly lower share than in the previous two quarters, but “consistent with a continued high expectation of construction delays.”
This is the conclusion of the National Multifamily Housing Council’s December 2023 quarterly survey of apartment construction and development activity.
Among developers affected, 92% reported delays in starts – a sharp increase from the 79% who reported such delays in the third quarter. Economic uncertainty was a primary reason for the construction holds, cited by 83% of respondents – up from the 57% in September. There was a 10% rise to 71% of respondents concerned about the economic feasibility of projects in the quarter. And some 79% of developers continued to worry about the availability of construction financing.
Another factor causing construction delays was the long waits for building permits, cited by 81%. Waits of five to six months were noted by 27% of respondents – well above the 12% reported in September. And 20% noted delays of seven to eight months in getting a permit, while a similar percentage endured waits of more than nine months. On top of that, almost half of developers pointed to new reporting requirements about energy efficiency and systems that are not related to actual construction.
“High interest rates, rapidly increasing insurance costs, skyrocketing state and local taxes are all coming together to make it difficult to build new housing despite the clear need for more housing of all types in communities throughout the country,” said NMHC President Sharon Wilson Gėno.
On the brighter side, labor shortages appeared to be stabilizing at 4% as a factor in delayed starts. Complaints about shortages of materials fell from 30% in the third quarter to 8% in the fourth. A three percent decrease in the cost of lumber also helped. But prices for exterior finishes and roofing, appliances and insulation continued to rise. The highest hike was an 11% boost in the cost of electrical components.
The survey suggests, however, that builders have found ways to try to work around rising prices. Many have made design changes in the type of materials used. Others have hooked up with alternative brands or suppliers or used alternative product types. Still others have changed purchasing schedules, for example by pre-purchasing or warehousing materials.
Because of challenges in importing and transporting materials, 52% of respondents said they were sourcing more products domestically – a much higher percentage than in prior quarters — and 34% said they were using alternatives.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.