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This could lead to lower supply and higher prices.

Due to rising interest rates and an increasingly saturated market, developers are applying for fewer building permits for multi-family homes.

According to Redfin, building permits for apartments in the U.S. have fallen by nearly 30% since the pandemic. So far this year, builders have received permits to build 13 multifamily homes per 10,000 of the country’s residents, according to the company’s new report, which is based on data from the U.S. Census Bureau.

In addition to the difficult interest rate environment, builders may be waiting out a construction boom of recent years that has made it difficult for property owners to find tenants. Only 47% of newly completed apartments were rented within three months at the end of last year, the lowest share since 2020, Redfin said.

Although permits have dropped significantly, falling below their historical 10-year average, the number of completed units remains at an all-time high as projects started during the pandemic are now being completed. This has created a backlog of new units that owners are competing to lease, putting downward pressure on rents. Asking prices, which had risen 18% during the pandemic, rose just 1% last year, according to Redfin, though the company noted that asking rents are still at their highest levels since 2022.

“Potential renters should be aware that now may be a better time to sign a lease than later,” said Sheharyar Bokhari, senior economist at Redfin. “Owners may start to raise rents again when all the new apartments that come on the market are occupied by tenants and supply is no longer as great, which could be in a year or two.”

Some Sun Belt markets have been able to buck the decline in building permits and are approving more multifamily units than anywhere else in the country. In Cape Coral, Florida, building permits were issued for 27 multifamily units per 10,000 residents, followed by 21 in Austin, Texas, 20 in Greensboro, North Carolina, and 18 in North Port, Florida.

“Florida is at high risk from storms, flooding and sea level rise and is the epicenter of the home insurance crisis,” the report said. “But builders are continuing to build because demand still exists — in part due to the influx of out-of-towners who moved in during the pandemic. The number of building permits in Florida could also increase as homeowners continue to rebuild after Hurricane Ian in late 2022.”

The two metropolitan areas with the fewest multifamily building permits per 10,000 residents are in California: Both Stockton and Bakersfield issued no permits in the first five months of 2024. Providence, Rhode Island, also issued no new multifamily building permits this year, while El Paso, Texas, Baton Rouge, Louisiana, Cleveland, Fresno, California, Detroit, Dayton, Ohio, and New Orleans each issued just one new multifamily building permit this year.