Why Now Is the Time to Build Multifamily

By Matt Vance, Chief Market Strategist & Economist, Thompson Thrift

Successful multifamily development has always required looking several years into the future. A community that breaks ground today won’t welcome its first residents for almost two years. That means development decisions shouldn’t be based solely on today’s market conditions. Rather, they should strongly consider what the market will look like as a development is completed. 

Viewed through that lens, the case is very strong for starting new, well-underwritten, well-located multifamily developments today.

The supply pipeline is the clearest line of sight into the future. While demand can fluctuate, the number of apartment units under construction and scheduled for delivery is largely known. That pipeline has changed dramatically over the past few years. After reaching historic highs following the pandemic, new multifamily starts have fallen by more than 50% and have even dropped below more typical pre-pandemic levels and much lower in certain markets.

The implications are significant. Fewer projects beginning today means fewer new apartments competing for residents in 2028 and beyond, creating the foundation for stronger operating performance for well-located developments (all-else equal).

The data tells us that the U.S. needed the homes delivered during the recent wave of apartment construction, and nationally those units have largely been absorbed. Strong renter demand has kept stabilized occupancy above 94%. That said, several years’ worth of housing was delivered within a compressed period, temporarily overwhelming many markets. That imbalance placed downward pressure on rents and property values even as underlying demand remained healthy.

Despite slower economic growth and cautious consumer sentiment, apartments have continued to lease at a healthy pace, albeit with higher leasing concessions. Several long-term structural elements have emerged and are keeping renters renting for longer. Buying a home remains prohibitively expensive and the median age of a first-time buyer is now 40 years. Life milestones like getting married and having children are happening later. There is also a growing shift in preferences for the flexibility and lifestyle of rental housing.

In markets that experienced the largest waves of new supply, particularly across the Sun Belt and Mountain regions, rents have declined by 10% to 20% from their peaks. In many markets, rents have fallen so far, they are well below where they would be under more typical market conditions. As the remaining supply pipeline is absorbed and new deliveries slow, the pendulum is likely to swing back from this overcorrection toward more balanced supply and demand conditions. This will allow rent growth to re-accelerate and support improving net operating incomes to drive appreciation in asset values.

Property values have experienced a similar correction. Higher interest rates, lower rents, and cautious capital markets have pushed apartment values well below recent highs in most markets. Yet values ultimately follow income. As rent growth resumes, investment activity increases, and competition among buyers intensifies, values should recover as well.

Markets across the Midwest and Northeast also offer attractive development opportunities, but for different reasons than the faster-growing Sun Belt markets. These markets delivered only modest supply pipelines and have experienced steady rent growth (consistently above 2%) and more stable property values throughout this cycle.

Regardless of region or market, successful development requires a disciplined approach to identifying the specific submarkets and neighborhoods where sustained job creation, household growth, and limited future supply are likely to support healthy long-term fundamentals.

In addition to a favorable outlook for operating fundamentals, development costs have come down substantially and are playing a key role in today’s underwriting. With substantially fewer projects under construction, demand for labor and subcontractors has softened. Together with mostly stable inflation, construction bids have moderated, and land costs have softened, improving project feasibility. In many cases, development costs have fallen by amounts comparable with the 10% to 20% decline in rents and values, allowing well-underwritten projects to remain financially attractive.

The best development opportunities require careful underwriting, conservative assumptions, and a disciplined, data-driven approach to market and site selection. The most successful developments are rarely those built during peak market periods. They begin when conditions are uncertain, deliver when competition has diminished, and enter markets as they regain stable operating fundamentals. For developers and investors willing to look beyond today’s headlines, the coming years represent an attractive window of opportunity. 

About Thompson Thrift Real Estate Company

Since its founding in 1986, Thompson Thrift has grown from a locally focused development and construction company into a full-service, integrated real estate enterprise with a national scope. From its offices in Indianapolis and Terre Haute, Indiana; Denver; Houston; and Phoenix, the company is engaged in all aspects of development, construction, leasing, and management of high-quality multifamily and commercial projects throughout the country. Thompson Thrift has invested more than $7.3 billion into local communities and has developed more than 100 residential communities totaling more than 27,700 units across 24 states. In 2026, the company was ranked the nation's No. 15 apartment developer and No. 17 builder by the National Multifamily Housing Council. For more information, please visit www.thompsonthrift.com.