Driven by High Interest Rates, Calif. Multifamily Construction Dips to 10-Year Low

Demand for housing in California is higher than ever, yet tenants there likely won’t see enough new supply anytime soon. 

Plans for new multifamily developments plunged 22 percent in the first quarter this year compared to the first quarter of 2023, according to the O.C. Register, which cited data compiled by the St. Louis Fed. 

Approved California permits for the first three months accounted for just 8,972 new units, the slowest quarter for new plans since 2014, per the Register. Meanwhile, nearly 160,000 units were under construction between 2021 and 2023, which at the time was the most voluminous stretch of multifamily construction since 2004 to 2006. 

The volatile economy is likely to blame for the decline in development, with the Federal Reserve signaling earlier this month that it will refrain from lowering interest rates until later this year due to stubbornly high inflation. 

Still, potential home buyers have been better off lately, as construction permits for single-family homes rose 26 percent this past quarter, compared to the last quarter of 2023, to 14,215 units. Although, that’s still 7 percent lower than the 2021 to 2023 permitting rate.

Tenants are also seeing some relief in rent prices so far this year. 

Rents in the Golden State dropped 1.4 percent in March, nearly twice the 0.8 percent declining  rate seen on average last year, according to data from Apartment List. However, statewide rents increased 11 percent in 2022, following a 5.5 percent increase in 2021.

Nick Trombola can be reached at ntrombola@commercialobserver.com.