By Kate Snyder
Across the United States, 2023 is shaping up as a new peak year for apartment construction as developers are expected to open 460,860 units throughout the country by the end of December. According to data from a recently released RentCafe report, the New York metro area has taken the lead in apartment construction this year with the most units expected to be completed by the end of 2023. However, major cities along the West Coast – including Los Angeles, Seattle and San Francisco – were among the top 20 for apartment construction.
The report, called “America’s Construction Boom: 1 Million Units Built in 3 Years, Another Million to Be Added Until 2025,” shows that apartment construction in the U.S. is experiencing its best years on record. Based on Yardi Matrix data, the report states that “the number of deliveries is expected to remain high until 2025 when the echoes of the current economic headwinds will begin affecting construction as well. But so far, in the last three years, America has been benefiting from a construction boom not seen since the 1970s.”
Rounding out the top 20 metros for apartment construction in 2023 are New York, Dallas, Austin, Miami, Atlanta, Phoenix, Los Angeles, Houston, Washington, D.C., Denver, Charlotte, Raleigh, Orlando, Seattle, Nashville, Tampa, San Francisco, Jacksonville, Minneapolis and Chicago.
In California, Los Angeles comes out on top for anticipated new apartment construction in 2023, according to the report. The city is estimated to see 5,857 new units by the end of the year. The surrounding cities are also projected to experience new apartment construction, with 1,737 new units in Santa Ana by the end of the year; Long Beach coming in with 783 new units; an approximate 771 units in North Hollywood; 659 in Anaheim; 344 in Inglewood; and 330 in Santa Monica.
Up north, Seattle is behind Los Angeles but ahead of the Pacific Northwest pack with an estimated 4,338 new apartments in the city for 2023. Tacoma comes in second in the Puget Sound region with a projected 1,326 new units, and following is Redmond with 917, Kirkland with 893, Shoreline with 693, Bellevue with 606 and finally Everett with 388.
In San Francisco, 1,848 new apartments are estimated to be completed in 2023, putting it behind both Seattle and Los Angeles. Across the Bay Area, several cities are projected to see hundreds of new apartments by the year’s end, according to the report. In Menlo Park, approximately 624 apartments are expected to be completed; in Fremont, 553; 454 new apartments are anticipated in Brentwood; and Walnut Creek is expected to see about 435 new units.
In response to the demand for flexible living spaces created by the pandemic lockdowns, developers delivered 1.2 million new apartments between 2020 and 2022, the report shows. Prior to this year, construction peaked in 2021 with the opening of nearly 440,000 brand-new units throughout the country. However, due to a number of factors, including the increased costs of construction materials, labor and land along with banks tightening their lending standards, the apartment construction supply growth is likely to slow down after the current round of projects is completed, according to the report.
Data shows that the number of new apartments is expected to drop by about 15 percent year-over-year, from 484,000 in 2024 to 408,000 in 2025. New completions are anticipated to bottom out in 2026 at approximately 400,000 units. Following that in 2027 and 2028, the pace of construction is projected to gradually recover.
“Construction debt starts at eight percent interest, and most banks only lend 60 percent or less of the total cost of a project,” said Doug Ressler, senior analyst and manager of Business Intelligence at Yardi Matrix. “Junior construction debt is even more expensive, with interest rates in the mid-teens. This financing structure can make it challenging for companies to initiate new construction projects unless they already have a substantial amount of capital on hand.”