Multifamily’s next turning point is taking shape while renters in many markets still have the upper hand. The recent building boom expanded their choices and forced owners to compete for leases. Yet weak rent growth, combined with high development costs, is making the next round of construction harder to justify. The conditions holding rents in check today could set up tomorrow’s shortage.
Lee & Associates’ Q2 research shows annual net deliveries peaked above 690,000 units in late 2024, fell to roughly 529,000 in 2025 and are projected to reach 385,000 in 2026, the fewest since 2019.
The supply cliff is a sharp decline in deliveries, not a halt in construction. For existing properties, it opens a window for demand to catch up. Pricing power can return as competing units fill and concessions recede, provided local demand holds up.
OCCUPANCY IMPROVES BEFORE PRICING POWER RETURNS
National vacancy declined 30 basis points to 8.2% in Q2 as first-half net absorption reached 255,162 units. Yet 21 of the top 50 markets Lee tracks still recorded negative rent growth, and a month or more of free rent remained common in competitive markets including Phoenix, Denver and Charlotte.
Premium apartments captured 78% of the units leased, underscoring how much activity is occurring at the upper end. But leasing volume alone says little about pricing power. Concessions can fill new buildings by drawing residents from nearby properties, leaving established owners competing with the same discounts.
Yardi Matrix counted 1.2 million units in properties still in lease-up at the beginning of August, roughly twice the prior decade’s average. Those properties will compete for renters even as new deliveries decline.
That recovery can differ even within a metro. In Seattle, new downtown lease-ups offering one to two months free compete differently from older, naturally affordable properties that are not offering concessions. Owners generally gain occupancy first, reduce concessions next and then push rents. Effective rents, after incentives, can improve before advertised rents move.
THE NEXT PROJECT STILL HAS TO PENCIL
The same pressures restraining rent growth are limiting what gets built. Achievable rents have to cover land, construction, financing and operating costs and still leave enough return to attract capital. Approval requirements and fees add costs before construction begins. An approved site can sit undeveloped when those economics fail.
Some publicly supported affordable housing and projects in high-rent pockets of Los Angeles and Orange County still pencil. Many conventional rental projects need stronger rents, lower costs or better financing to attract capital.
Even when they work out, apartments don’t get built overnight. NAHB’s Census-based analysis puts 2025 permit-to-completion time at 18.9 months on average, rising to 21.7 months for buildings with 20 or more units.
That lag helps explain why permits can rebound while deliveries are still falling. NAHB reports national multifamily permitting rose 4.5% year-over-year in the first half of 2026, although gains were uneven across markets. But projects still need financing and construction, so rising permits alone cannot establish when deliveries will recover.
FEWER DELIVERIES CHANGE THE BALANCE
Seattle’s delivery forecast shows the scale of the near-term pullback. Lee’s Pacific Northwest office projects 8,091 net new apartments in 2026, down 22% from 2025 and 45% from the 2024 peak.
Meanwhile, Houston shows how much adjustment remains after a pipeline contracts. Units under construction fell to 12,920 in Q2, down 46% from 24,018 a year earlier, while trailing-year absorption improved to 6,709 units. Vacancy eased during the quarter but remained 12.2%, above year-ago levels, with asking rents still lower. A smaller pipeline improves the outlook well before it repairs the operating statement.
Atlanta’s quarterly improvement also remains incomplete. Vacancy fell to 10.9% in Q2 from 11.4% in Q1, and asking rents edged higher. Units under construction declined during the quarter but remained above year-earlier levels, keeping new competition in the market.
Reno shows how sharply the balance can shift. Deliveries fell below 800 units in 2025 after topping 2,000 in three of the preceding four years. Vacancy declined from 8.7% to 6.2% year over year and asking rents rose roughly 4% while trailing-year absorption actually slowed. New supply slowed enough for demand to catch up.
Vacancy can improve when net absorption exceeds deliveries, even if absorption is slowing. Employment and household formation still need to support leasing; constrained construction offers little protection against a weakening local demand base. READ THE FULL ARTICLE>
