"We’re now getting back into a much more normal housing market," says Middleburg's Chief Economist Brad Case

Apartment Demand Mojo Intact As New Construction Slows

Leasing activity surges as new construction slows, signaling a reset in apartment markets. Rent growth flattens, but occupancy climbs as affordability barriers to homeownership stall would-be buyers.

The Builder's Daily
Richard Lawson
July 21, 2025

The U.S. multifamily housing market entered the summer of 2025 on firmer footing, as strong leasing demand, flat rent growth, and a marked slowdown in new construction signaled the industry's ongoing adjustment to two years of robust supply.

Apartment leasing activity surged as homebuilders endured an underwhelming spring selling season that shook their confidence going forward.

Builders – similar to ground-up apartment developers – have been slowing down new construction to work through mounting supply. New home prices in certain parts of the country have been declining due to mounting surpluses, as potential buyers remain cautious with 30-year mortgage rates hovering around 6.8%.

Although national rent growth has been flat to modest, some of the most active construction markets, such as Austin, are now experiencing the most significant rent reductions and the highest vacancy rates among the nation’s major markets.

Just-released NMHC Market Tightness Index data corroborates this:

"The Market Tightness Index (54), Sales Volume Index (55) and Debt Financing Index (69) all came in above the breakeven level of 50, indicating improved conditions, while the Equity Financing Index remained just below 50 (48). Still, a majority of respondents for each of the four indexes reported unchanged conditions compared to April.

“Rent growth remains low in the South and West amidst a historic overhang of new supply, even though strong demand has kept absorptions high and occupancy stable,” noted NMHC’s Chief Economist and Senior Director of Research, Chris Bruen. “Meanwhile, tighter apartment conditions persist in the more supply-constrained Northeast and Midwest.”

“While high levels of political and economic uncertainty have kept some equity capital on the sidelines, survey respondents did report an uptick in transaction volume for the second consecutive quarter.”

Meanwhile, San Francisco, Chicago, and New York City experienced the highest rent growth over the past 12 months, according to apartment industry analytics company RealPage.

"We’re now getting back into a much more normal housing market,” Brad Case, chief economist at Northern Virginia-based apartment company Middleburg Communities, tells Money Life host Chuck Jaffe.

Despite the surge in supply and steadier prices, housing advocates and lawmakers remain unconvinced, insisting a shortage still grips the market, especially for affordable homes. In response, states and cities have been working to clear bureaucratic hurdles so that building more is easier.

Case notes that, despite the recent surge, a shortage of new housing has persisted for 50 years, disproportionately affecting young households.

"Whether it’s trying to buy a place or rent a place, there aren’t enough housing units for them, and especially the owner-occupied end of the market,” Case says. “It’s simply become too expensive.”

Apartment Leasing Demand

Apartment demand reached a post-pandemic high in the second quarter, with 116,000 units absorbed between April and June, according to a recent report from commercial real estate firm Cushman & Wakefield. RealPage reported absorption at more than 227,000 units.

National occupancy climbed to 95.6% in June, according to RealPage, up 1.4% year-over-year—a notable rebound as operators shifted focus from aggressive rent hikes to maximizing occupancy.

Major markets with strong job growth, particularly those experiencing expansions in the technology and business sectors, helped drive the leasing momentum.

Rents Hold Steady as Owners Prioritize Occupancy

Despite the surge in leasing, asking rents nationwide showed only a modest decline. Cushman & Wakefield reported that year-over-year national rent growth hovered at 1.7% in the second quarter, down from 2% in the previous quarter—a slowdown reflective of competitive concessions and the race to secure tenants amid ongoing construction deliveries.

Some of the California apartment markets hardest hit during the pandemic are now seeing rent growth. San Jose’s annual rent growth is 4.7%, among the highest in the country, according to Cushman & Wakefield, which also reports San Francisco’s at 3.7%. RealPage places San Francisco’s annual growth at 6.4%.

"Both San Jose and San Francisco are finally showing signs of recovery after relatively minimal rent growth over the past five years,” the Cushman & Wakefield notes.

However, supply-heavy metros, including Austin, Denver, and Phoenix, topped the 50 markets RealPage covers in rent declines over the past year.

All three metros have been popular among apartment developers and homebuilders for developing ground-up horizontal and vertical neighborhoods.

Construction and Supply Dynamics

The new supply that characterized the previous two years continues to slow. Developers delivered 213,000 new apartment units in the second quarter, according to Cushman & Wakefield, down from record levels in 2024; however, it is still above the long-term average.

The construction pipeline, once swollen to historic highs, has dropped below 500,000 units nationally for the first time since 2016, as cost-of-capital financing constraints limit new project starts. Patterns varied regionally, with only a handful of markets seeing increases in local project pipelines, according to Cushman & Wakefield.

Outlook

As the dust settles from the supply surge, industry experts expect subdued but positive rent growth for the remainder of 2025, buoyed by resilient demand and a construction slowdown that should gradually tighten vacancies.

Homebuilders, however, are caught between persistent housing demand and growing affordability barriers—a paradox that may shift the balance toward apartment living over homeownership.