Why Multifamily Projects Are Outpacing Single-Family Homes in the 2025 U.S. Housing Market

US housing starts saw a notable increase in May 2025, largely propelled by a resurgence in multifamily construction. This rebound followed a volatile period earlier in the year, with starts surging in December 2024 but then dropping sharply in January 2025 due to cold weather and high inventory. Recent data shows that multifamily projects, such as apartment buildings, are now outpacing single-family home construction, reflecting a shift in market dynamics and continued strong demand for rental housing.

Multifamily construction has clearly led this growth, with starts for buildings with five or more units jumping by 11.1% in April—one of the largest increases in nearly two years.  This surge has pushed overall housing starts above economists’ forecasts, even as single-family construction remains subdued. The preference for multifamily developments is driven by affordability challenges in the single-family market and robust demand for rental units, especially in urban and suburban areas.

In contrast, single-family starts, which usually make up the majority of new construction, have grown more slowly, with some months seeing only modest increases or even declines. Builders remain cautious due to high mortgage rates—around 7%—and home prices that are about 30% higher than pre-pandemic levels, which has dampened buyer demand and led to higher inventories of unsold homes. Some builders are offering incentives like mortgage rate buy-downs to attract buyers.

Looking ahead, economists expect only modest growth in the new-home market for the rest of 2025, as high borrowing costs and elevated prices continue to weigh on demand. Tariffs on imported building materials, especially lumber from Mexico and Canada, are also impacting builder sentiment and construction costs. However, building permits—a key indicator of future activity—have stabilized, suggesting that while immediate growth may be limited, the market is not headed for a sharp downturn.

The standout feature of the 2025 US housing market is the robust growth in multifamily construction, which has significantly boosted overall housing starts even as single-family home building remains subdued. This trend highlights the strong demand for rental housing and the stabilizing effect multifamily projects are having on the broader market, making multifamily investments particularly attractive in the current environment.

Ashland Capital continues to pursue value-add multifamily and student housing opportunities because of strong rental housing demand. We are targeting opportunities in the Midwest and South/Southeast that offer compelling risk-adjusted returns.

Source: bloomberg.com