Navigating the future of multifamily and single-family home construction

The push for more attainable housing will continue to reshape the market in 2026 and beyond despite the challenges facing homebuilders and multifamily developers. 

We expect 2026 will be a turning point for multifamily housing, with stronger rental growth and declining vacancy rates. Last year multifamily showed signs of a supply-and-demand rebalance due to resilient rental demand—driven by limited affordability in the single-family sector—and a decline in multifamily completions.

Developers, meanwhile, should make the most of this opportunity by embracing innovation and appealing to a customer base looking to enter the market.

As for single-family, 2026 is not expected to improve much from 2025 as affordability challenges persist.

How we got here

Affordability is not a new concern in this industry. Demand during the COVID-19 pandemic pushed housing prices and rental rates to record highs across the U.S. due to interest rate cuts and migration from congested metropolitan areas.

But the postpandemic period left the housing market with significant volatility and uncertainty that continue to worsen. Buyers were sidelined by affordability issues and an oversupply of multifamily housing, which created an imbalance that led to a sharp decline in rental growth. 

Housing construction, which could not keep up with the demand five years ago, suddenly came to a screeching halt as higher interest rates made housing less attainable for buyers. Simultaneously, the wave of multifamily projects started during the pandemic created an oversupply, particularly in Sun Belt markets.

As inflation hit record highs, the Federal Reserve responded with one of the most aggressive monetary policy tightening cycles in history. 

This led to a sharp increase in mortgage rates, which intimidated buyers and left renters with limited affordable options.

Despite only modest price growth since the pandemic era, higher-for-longer mortgage rates combined with limited income growth notably affected affordability—particularly in the first-time homebuyer segment, where many chose multifamily and build-to-rent alternatives over single-family homes.

Development forecast sunnier for multifamily than single-family

Multifamily development saw an uptick in 2025, with starts up 13.9% year over year in August, according to the U.S. Census Bureau. However, permit data pulled back in recent months, with permits down 7.3% in August compared to the same period in 2024.

Recent improvements in financing conditions and moderating material costs, albeit affected by tariff uncertainty, could help create a brighter landscape for multifamily development. Recovery in this sector will not be uniform since several large Sun Belt markets remain oversupplied despite seeing a decrease in new construction deliveries.

The outlook is grim on the single-family front, which did not fare as well in 2025 as many hoped.

Higher interest rates continued to suppress demand and keep out aspiring buyers. Although material inflation moderated, its lingering effects coupled with tariff uncertainty continued to drive up building costs and squeeze margins.

A recent easing in interest rates brightened builder confidence, which increased by five points in October to 37—the highest reading since April—according to the National Association of Homebuilders. This suggests that while sentiment is still negative (below 50), conditions are improving.

Notably, the sales expectation index jumped nine points to 54, indicating that builders feel optimistic about future conditions in the home sale market.

Labor issues, tariffs affecting builders

Builders and multifamily developers faced significant headwinds in 2025 despite improving sentiment, including consumer affordability challenges, material price inflation, labor shortages and a higher cost of capital.

While material price growth is moderating and interest rates are showing a gradual decline, the effects of higher tariffs are likely to result in higher material costs—creating further uncertainty in the construction landscape.

The shortage of skilled workers will continue to affect the cost and availability of labor, which could result in construction delays, higher labor costs and slower future growth.

A recent study by the National Association of Home Builders   estimated the annual economic impact to the construction industry to be $10.8 billion annually due to longer construction times associated with the skilled labor shortage in the U.S.

This study also estimated that the labor shortage added 1.98 months to incremental construction time, with smaller builders experiencing even more delays.

Focus on attainability and innovation

As the single-family and multifamily construction industries look to capitalize on opportunities, attainability should be developers’ primary focus.

Continuing to offer incentives, including rate buydowns, and providing smaller and more affordable housing options are strategies developers could consider to attract more buyers.

Embracing innovative building practices can also help developers increase market share and stay competitive. Leveraging modular construction, AI-driven project management and sustainability-focused designs will help reshape cost structures and tenant expectations—while providing a competitive advantage.