Multifamily building permits drop as interest rates rise

While you may be seeing apartment buildings multiplying throughout Northern Colorado, all indicators show that construction is slowing — heavily.

Year-to-date values of multifamily units are down across the board by double digits in Greeley, Longmont, Loveland and Windsor, according to city building permit reports. Builders have pulled exactly zero multifamily building permits in Broomfield through June, versus 41 last year at the same time worth $179 million. And Fort Collins’ multifamily building is starting to slow.

It is a little hard to fathom a slowdown given the enormity of ongoing multifamily construction you may see every day. But current construction may just be the result of 2023 building permits working their way through the system.  

“In general, the industry determined after COVID there was a need for rental, and we had a lot of national companies come in and build apartments up and down the Front Range, and it just met the need,” said Don Burchett, planning manager for the city of Longmont.

Multifamily building permits are so far a fraction of the 2023 construction activity in Northern Colorado. As an example, Loveland builders through June pulled 50 permits for multifamily construction versus 699 multifamily units in the first half of 2023. Windsor builders have pulled 39 permits through June versus 122 last year at the same time. Likewise, Greeley builders pulled permits for 56 apartment units through June versus 505 last year at the same time.

That’s lining up with an expected slowdown across the nation through 2025, according to Statista.com.

“In recent years, the multifamily market has expanded exponentially and in 2021, the value of multifamily lending reached over $487 billion. With 42 percent of the total U.S. market in 2021, the multifamily real estate investment market was even bigger than the office market,” Statista reported.

Just a week ago, the National Association of Homebuilders reported that developer confidence was low on multifamily construction.

“Multifamily developers are less optimistic than they were at this time last year,” Tom Tomaszewski, president of The Annex Group and chairman of NAHB’s Multifamily Council, said in a prepared statement. “Some are struggling with particular local regulations, but the main reason it’s difficult to get projects started is high interest rates.”

Each city differs in Northern Colorado. Fort Collins developers are spending more time developing infill projects, as there is little available land left. Consequently, their numbers are down. Longmont has a mix of both infill and greenfield multifamily going up. Firestone is actually experiencing a bit of a boom.

Fort Collins chief building official Marcus Coldiron said while numbers are down just about 7% in Fort Collins, it seems to indicate normal operations.

“I’m not really seeing much slowdown outside of what I’d generally link to normal market volatility and trends throughout the year,” Coldiron said. “I still think there is some open space in northeast Fort Collins and there is still a decent amount of infill lots. We’re seeing a trend targeting some of the infill lots to densify and place larger, taller buildings than we typically would have.”

Loveland director of development services Brett Limbaugh said there are a number of entitlements going through the process which will equate to roughly 5,000 single- and multifamlily units in Loveland’s northwest area, but there are no building permits just yet.

“We are ready to construct those when the market is ready, and I have a feeling that the market is making another course correction,” Limbaugh said.

Burchett of Longmont said the city will likely see a downturn through 2026, given today’s numbers, as it takes from six to nine months to fully move projects through the city’s process.

Greeley officials, however, see a bright light at the end of the tunnel.

“Currently, there are roughly 10,000 multifamily units and 5,000 single-family units in the entitlement process, which runs from initial subdivision or site plan application to building permit to ready for occupancy,” Don Threewit, planning manager for the city of Greeley, said in email responses to questions. “Building these units is subject to market forces and each developer’s business plan. Based on historic average growth rates and household sizes, we could see anywhere between 700 and 5,000 units in 2025.”

Greeley multifamily saw a huge drop (67%) in value in 2023. Through June 2024, multifamily permit values dropped again by 79% from the same time last year.

Greeley officials had anticipated a return to normal in construction-activity levels this year, akin to a five-year average. 

“Affordability and mortgage interest rates are the most likely culprit for slowed activity in single-family,” Threewit said in his email responses. “Increased lender apprehension for multi-family in the region may signal a sense of saturation, and in Greeley specifically, inventory of buildable land is currently high.”

The NAHB chief said the market will work out if interest rates are cut.

“There is no doubt that interest costs and limited financing availability are making it difficult to develop multifamily properties,” NAHB chief economist Robert Dietz said in a prepared statement. “However, financial markets may become more stable later in the year, as recent weak economic data make it more likely the Fed will cut interest rates.”

Innovation, however, has a way of rearing up when the market is down. And it might be a welcome site — even in the “most affordable” city in Northern Colorado.

“Single-family build-to-rent neighborhoods are entering the arena, as are multi-generational units, and shared ownership arrangements are increasing among market entrants,” Threewit said in his email. “Interest rate reductions are a temporary fix to a very broken market, and will help usher existing potential buyers off the sidelines (and likely out of multifamily).”