Shifting Multifamily Supply / Demand Dynamics

Written by October 10, 2025

Over the last several years, multifamily housing has experienced an unprecedented surge in new development. Fueled by strong demand, high occupancy, and historically low interest rates, developers pushed construction activity to levels not seen since the 1970s.1

Now that story is changing, and for property owners and investors, this shift points to a more favorable environment.

New Construction Starts Are Falling Nationwide

Across the top 150 U.S. markets, apartment inventory growth is retreating from historic highs. In 2023 and 2024, nearly one-third of markets grew supply by more than 4%. By 2025, that number is expected to drop considerably, with more than 100 markets seeing inventory expand by less than 2%—the lowest level since the aftermath of the Global Financial Crisis.

This slowdown isn’t confined to one region. Sun Belt markets like Austin and Nashville saw outsized development in recent years and are now seeing supply expansion cut by nearly half. Gateway markets such as Boston are experiencing muted growth as well, with inventory projected to rise by just 2.6% in 2025.1

Demand Remains Resilient

Demand for rental housing remains historically strong, and there are a number of factors1 pointing towards this trend continuing:

• The median first-time homebuyer is now 38, meaning households are renting longer
• Vacancy rates remain below long-term averages
• Absorption (net new renter households) has exceeded expectations in both 2024 and early 2025
• Mortgage rates have dropped from their peaks; however, the affordability gap between renting and home ownership remains historically large

Meanwhile, new deliveries are expected to fall dramatically. Between 2020-2024, the market delivered an average of 515,000 units per year. Forecasts over the next five years show new completions dropping to just 317,000 units annually.1

Future Outlook

This “supply cliff” sets the stage for a period where demand is likely to outpace supply, creating upward pressure on rents. Importantly, once this trend sets in, it will be difficult to slow down as multifamily development typically involves long timelines. On average, projects take around 29 months from permitting to completion.2

What This Means for Investors

For multifamily property owners, slowing supply and steady demand gains are creating an environment where rent growth is likely poised to accelerate. With fewer new units competing for tenants, owners may regain pricing power, improving both operating income and asset values.

For investors considering 1031 exchanges or new acquisitions, the current market represents a potentially appealing entry point. As new supply continues to taper, the ability to capture rental growth could translate into attractive long-term returns.

At Chicagoland 1031 Exchange, we believe these dynamics reinforce multifamily housing as a compelling hedge against inflation and a resilient income-producing asset class to diversify investors’ portfolios. We also continue to see multifamily investing as a cornerstone of 1031 exchangers’ replacement property allocations.

If you have any questions or want to learn more, we’re here to help. Talk to one of our advisors today.

1. CoStar, as cited in the Griffin Capital Market Research Note – Multifamily Supply Trends (July 31, 2025).
2. Griffin Capital