Multifamily Starts Plunge 40% as Capital Costs Bite
After three years of historic delivery volumes, the pipeline for new apartments in Maricopa County has abruptly stalled.
The cranes dotting the Phoenix skyline tell a story of projects financed two years ago. Look closer at the permit data, however, and a different narrative emerges. New multifamily groundbreakings in Q1 2024 were down 42% compared to the same period in 2023.
The Mathematics of the Slowdown
The math on new development no longer pencils out for many institutional builders. With SOFR (Secured Overnight Financing Rate) elevated, construction loans are routinely pricing in the 8-9% range. Coupled with flat-to-declining rent growth (down 1.2% year-over-year) and sticky construction costs, the yield-on-cost spreads have evaporated.
| Submarket | Q1 2023 Starts (Units) | Q1 2024 Starts (Units) |
|---|---|---|
| Downtown Phoenix | 1,250 | 420 |
| Scottsdale | 800 | 150 |
| West Valley | 2,100 | 1,600 |
The Build-to-Rent Pivot
While traditional wrap and podium products stall, horizontal build-to-rent (BTR) communities continue to show resilience, particularly in the West Valley. Developers argue these products are less sensitive to interest rate volatility because they can be built in phases, avoiding massive upfront capital drawdowns.
Frequently Asked Questions
- Will this cause rent spikes?
- Not immediately. Phoenix still has a record number of units (over 30,000) currently under construction that will deliver in the next 18 months. The supply crunch—and subsequent upward pressure on rents—is projected to hit in late 2025.