WARNING: Building Permits Crash 27% - Rent Surge Coming?

Housing market shifts are reshaping America's real estate landscape in ways that affect everyone from renters to hopeful homebuyers. Our deep dive reveals a startling reversal: permits for new apartment construction have not only cooled from pandemic highs but actually fallen below pre-COVID levels. This 27% drop from peak building activity signals serious trouble ahead for rental markets nationwide.

Why the sudden halt? Developers face a brutal equation: flattening rent growth combined with skyrocketing borrowing costs. Though many areas currently experience a temporary glut of newly completed units (started during the boom), the sharp decline in new projects means tomorrow's renters will likely face tighter markets and potentially higher costs once this current inventory is absorbed.

The ripple effects extend well beyond rentals. With fewer new homes being built, buyers increasingly turn to older properties, pushing the median age of homes sold to an unprecedented 36 years - nearly a decade older than just ten years ago. Simultaneously, younger buyers are being squeezed out of the market entirely. First-time homebuyers now represent only 24% of purchases (down from 50% in 2010), with their median age climbing to 38 years. Even more striking, the overall median homebuyer is now 56 years old - a 44% increase from just two decades ago.

Regional differences add another layer of complexity. While established areas like the Rust Belt naturally feature older housing stock, even former boom towns are seeing dramatic shifts. Nearly two-thirds of major metros have cut back sharply on apartment permitting, with some slashing new permits by over 60%. The housing landscape varies dramatically depending on local factors - history, economy, and available land.

Whether you're currently renting or hoping to buy, understanding these fundamental shifts can help you navigate an increasingly challenging market. What does the age and availability of housing in your specific region tell you about its future trajectory? The answer could significantly impact your housing decisions in the years ahead.

Disclaimer: All examples are hypothetical and for educational purposes only. This is not legal, tax, financial, or brokerage advice.

Chapters

• 0:25 Housing market shifts overview
• 0:57 Multifamily permits dropping substantially
• 1:38 Why developers hit the brakes
• 2:46 Older homes and changing buyer demographics
• 4:51 Regional differences in housing markets
• 5:50 Key takeaways for listeners

Transcript

Speaker 1 0:00

Welcome back to the Deep Dive. Today we're really digging into some shifts in the US housing market.

Speaker 2 0:06

Yeah, some interesting data out there. We've looked at analyses covering well everything from new construction or maybe the lack of it.

Speaker 1 0:12

Right, exactly. And also who's actually buying homes these days?

Speaker 2 0:16

And our mission, as always, is to sort of cut through the source material and pull out the key nuggets for you.

Speaker 1 0:29

What's happening. Why should you care whether you're you know renting or hoping to buy soon?

Speaker 2 0:31

Definitely, and the first thing that jumps out is pretty big Permits for new multifamily apartments. They've actually dropped, dropped significantly below pre-pandemic levels, which is quite something. Below pre-COVID Wow yeah, the data shows developers permitted about 12.4 multifamily units per 10,000 people nationally in the last year. Now that's down 27 percent from the peak, which was quite a frenzy.

Speaker 1 0:51

I remember that boom.

Multifamily permits dropping substantially

Speaker 2 0:52

Oh yeah. But the key thing, it's now 5.5 percent lower than before the pandemic even started. So it's not just cooling off, it's well, it's reversed below that baseline.

Speaker 1 1:03

Yeah, ok, hold on. We had that huge construction surge right, especially Sunbelt remote work moves. What slammed the brakes on so hard for developers?

Speaker 2 1:13

Well, a couple of big things shifted, and fast. First, rent growth. After soaring it's really flattened out, even gone down in some spots.

Speaker 1 1:20

Okay.

Speaker 2 1:21

And, at the same time, borrowing costs Through the roof. Higher interest rates make financing these huge projects way more expensive.

Speaker 1 1:30

So potential income is flat, costs are way up.

Why developers hit the brakes

Speaker 2 1:33

Exactly. The math just doesn't pencil out anymore for a lot of these potential new builds.

Speaker 1 1:38

There is a quote, I think, from a redfin economist in the source material.

Speaker 2 1:42

Yeah, basically saying new apartments are renting at the slowest pace on record, slowest ever. That's what he said and pointed right at those high interest rates forcing builders to quote pump the brakes.

Speaker 1 1:52

Okay, so brakes are on now, but here's where it gets. Maybe a bit concerning for renters.

Speaker 2 1:56

Potentially yes.

Speaker 1 1:57

Yeah.

Speaker 2 1:58

The analysis suggests this slowdown in starting new projects now. Well, it's likely to create a squeeze down the line.

Speaker 1 2:05

A squeeze, meaning fewer available rentals.

Speaker 2 2:08

Fewer available units hitting the market maybe a year or so from now, which could ironically push rents back up again.

Speaker 1 2:14

Wait, okay, so help me square this. They're renting slowly now, but you're saying rents might go up later because permits dropped. Today Seems like a lag.

Speaker 2 2:23

It is. It's all about the supply pipeline.

Speaker 1 2:25

Yeah.

Speaker 2 2:25

See, we had a ton of completions, record completions actually in early 2024.

Speaker 1 2:31

Ah, from projects started during the boom.

Speaker 2 2:33

Exactly, yeah. So that's why things are renting slowly. Right now there's this temporary flood of just finished units, but because fewer new projects are getting started.

Speaker 1 2:41

The future supply shrinks.

Older homes and changing buyer demographics

Speaker 2 2:43

Precisely Once this current batch gets absorbed. The lack of new stuff coming online behind it is what tightens the market. That's the prediction anyway.

Speaker 1 2:52

Got it Okay. The pipeline's drying up and this slowdown it's not just apartments, right, it seems like it's having a ripple effect on the whole market. Older homes who's buying?

Speaker 2 3:02

Absolutely. It affects the existing housing stock, like the whole market. Older homes who's buying? Absolutely it affects the existing housing stock. With fewer new builds, buyers are looking more at older homes. Makes sense and the data backs it up. The median age of a home sold in the US this year hit a record 36 years old 36?

Speaker 1 3:17

Wow.

Speaker 2 3:17

Think about it. That's nearly 10 years older than the median just a decade ago. It says a lot about what's actually available out there.

Speaker 1 3:24

And this ties into who can actually afford to buy, doesn't it the buyer? Demographics are changing.

Speaker 2 3:28

Dramatically Younger first-time buyers. They're a much smaller slice of the pie now.

Speaker 1 3:33

How small?

Speaker 2 3:33

Down to just 24% of purchases. Compare that to 50% back in 2010. It's a huge drop 50% down to 24. Wow. And the median age for a first-time buyer now 38.

Speaker 1 3:44

Again, highest ever recorded 38 for your first home. Yes, yeah.

Speaker 2 3:48

And if you look at the average buyer overall, including people moving up, the median age is now 56.

Speaker 1 3:53

56.

Speaker 2 3:54

Up 44% from just 20 years ago. It's a substantial shift.

Speaker 1 3:57

So connecting the dots. Yes, scarce new homes, high prices, high rates.

Speaker 2 4:02

Yeah.

Speaker 1 4:03

It really looks like it's pushing younger people out, or at least towards older homes, leaving the field more to well older, maybe wealthier, buyers.

Speaker 2 4:09

It seems that way, though the sources do mention that even the price gap between new and older homes is narrowing a bit, because demands for those older ones is up.

Speaker 1 4:18

Right.

Speaker 2 4:19

But what's really fascinating is how this isn't uniform. The regional differences are stark.

Speaker 1 4:25

Ah, yeah. So where are we seeing these older homes concentrated?

Speaker 2 4:29

Mostly in established areas. You know Rust Belt, Northeast, I think, Buffalo, Pittsburgh, places with inherently older housing.

Speaker 1 4:37

And the newer homes Still the Sun Belt boom towns.

Speaker 2 4:40

Generally, yeah, Places like Austin, Raleigh that saw huge recent growth, Though even there things are changing.

Speaker 1 4:46

Like Austin, I saw they're still permitting a lot of apartments per capita, despite the national trend.

Speaker 2 4:51

Austin's still high, yes, but nearly two-thirds about 63% of major metros have actually cut back on apartment permitting since the boom reversed.

Speaker 1 4:58

Cut back hard.

Speaker 2 4:59

Some places drastically Colorado Springs, Boise City slashed permits by over 60%. But then you see countertrends. Oh, Oklahoma City, even Pittsburgh, have seen permits increase sharply recently. Mind you, they're often starting from a much lower base level than the Austins of the world.

Speaker 1 5:17

So it really depends on local factors history, economy, land.

Speaker 2 5:21

Absolutely Creates very different housing situations across the country.

Speaker 1 5:24

Okay, so let's bring it back. What's the key takeaway for you? Listening right now?

Speaker 2 5:28

Well, if you're renting, that big drop in new permits we started with it strongly suggests the pipeline of new apartments is slowing way down.

Speaker 1 5:38

Which could mean tighter supply, maybe higher rents coming.

Speaker 2 5:42

That's the potential risk down the road. Yeah, Even if rent growth is soft right now in some areas.

Speaker 1 5:46

And if you're trying to buy.

Key takeaways for listeners

Speaker 2 5:47

Be prepared for a market where the average home for sale is well older than it's ever been.

Speaker 1 5:53

And you might be competing with buyers who are, on average, quite a bit older than buyers were, say, 20 years ago.

Speaker 2 6:00

That seems to be the trend.

Speaker 1 6:01

Okay, so a final thought for everyone listening to, maybe Mull over.

Speaker 2 6:05

Yeah, Given these really sharp regional differences we talked about building activity, the age of homes varying so much from, say, Pittsburgh to Austin.

Speaker 1 6:13

How might these national trends we've discussed play out specifically where you live?

Speaker 2 6:18

Right, what does the age of the housing stock in your neighborhood, your city, tell you about its dynamics, and what might that mean for you, whether you're renting?