Timing Demand: Why Investors Choose To Buy Apartments Vs. Building

Apartment investors are feeling confident about the second half of the year, even with persistent economic uncertainty looming.

That burgeoning interest is expected to play out more in property acquisitions than in building new ground-up apartments, however.

While home construction has slowed, apartment starts have dropped to levels not seen in years as developers applied the brakes in the wake of higher interest rates and soaring construction costs.  

This tightening pipeline is forcing both developers and investors to reassess their strategies, particularly as financing becomes increasingly complex.

The dearth of starts is expected to deepen to the point where the industry anticipates an undersupply of new apartment units in the coming years.

Texas, the biggest market for new home construction, remains at the forefront of the nationwide slowdown in apartment construction, according to commercial real estate firm Cushman & Wakefield’s first quarter data. Over the past year, Dallas/Ft. Worth, Austin, and Houston have seen the largest drops in construction pipelines, with nearly 60,000 fewer units currently under construction compared with a year ago.

The apartment construction boom that began during the COVID-19 pandemic is still delivering units, and doing so at a rate that outpaces starts by the widest margin in five decades.

Even with the number of units coming on, renters are renting, and rent growth has largely been positive.

The Big Gap Forming

Citing recent Census data, Jay Parsons, strategy advisor at Madera Residential, wrote on LinkedIn that multifamily completions exceeded new starts by 222,800 units over the past year.

The biggest historical completions-vs.-starts delta occurred in 1975 when the gap was nearly 350,000.

Ongoing construction has fallen to the lowest levels since 2021, and should drop much further,” Parson said. “The good news: The continued drop further buttresses the case to get new projects started, as they would complete in 2027-28 when there will almost certainly be very limited supply in the market.”

Finding the money to build, however, is the challenge, but it is not impossible if developers have the necessary equity.

We’re finding the banks are starting to come out of the woodwork, albeit they're still pretty conservative on leverage,” Max Mellman, founder and managing partner of Beverly Hills, CA, real estate investment banking firm Max Benjamin Partners, told The Builder’s Daily. “Given the high-interest rate environment and the liquidity crunch in commercial real estate, borrowers are tending to use debt funds more and more often.”

Mellman, whose firm provides high-leverage non-recourse construction and bridge loans, says they are “very active in the build-to-rent and built-for-sale space and have a pretty vast pipeline.”

The firm’s top markets include the North Carolina metros of Charlotte, Durham, and the Piedmont Triad, as well as Nashville.

Demand for apartments is particularly high in those areas, however. Max Benjamin Partners has also recently funded a 158-unit modular condominium project in Traverse City, MI, the main city in a metropolitan statistical area with a population exceeding 153,000.

There’s demand for rentals there,” Mellman says. “It’s among the top 150 MSAs. Pretty desirable.”

Confidence Among Investors in Buying Apartments, Not Building

Investors cooled on buying apartment buildings when interest rates began shooting up in 2022. Values were bid up during the pandemic, when rent growth reached historic levels.

A large gap emerged between what sellers wanted and what buyers were willing to pay.

Sales declined sharply in 2023, stabilized somewhat in 2024, and showed strength in the first three months of this year. Commercial real estate firm CBRE reported $28.8 billion in multifamily transactions, a 33% increase over the same period last year.

Investors are now seeing potential because demand for renting apartments has improved, and the construction pipeline has tightened.

Nearly 48% of investors believe the best buying opportunities will emerge in the second half of 2025, with another 39% expecting even better conditions in 2026 and beyond, according to a survey conducted by Matthews Real Estate Investment Services. Only 12.5% saw the first half of the year as optimal for new investments.

Investor focus remains strongest in the Southwest and Southeast regions, which are benefiting from demographic shifts and migration trends.

Driving Renter Demand

Carl Whitaker, Chief Economist at RealPage, stated on LinkedIn that the multifamily market has experienced wage growth outpacing rent growth for ten consecutive quarters.

“I don't see this trend reverting for at least another few months because wage growth will almost certainly outpace rent growth through the end of the year,” Whitaker wrote.

As a result, he said that the typical market-rate multifamily household is allocating less of its income toward rent than at any time since early 2020. This has supported deeper demand for Class A units, even amid a peak in new supply, he added.

Whitaker also noted that there is significant variation in rent growth between markets. Slower-growing major metros, such as New York, Boston, and Los Angeles, are experiencing strong rent growth, while faster-growing Sun Belt markets are still working through a period of oversupply.

The fact that wage growth is still so high also serves to keep rent from falling much more than it otherwise would in the most oversupplied markets such as Austin,” he said.

Despite these positive trends, some experts warn of near-term demand challenges. In a LinkedIn post, Jay Lybik, senior director of market research for Continental Properties, pointed to the job market’s possible impact on apartment demand.

By no means do all new college graduates end up leasing an apartment once they get that diploma, but a meaningful pullback in hiring can push more young adults back home with their parents and not into an apartment,” Lybik wrote.

As the second half of 2025 approaches, apartment investors are betting that today’s construction slowdown will pave the way for tomorrow’s opportunities.

With supply tightening, demand holding strong, and financing slowly loosening, the stage is set for a market that rewards patience, creativity, and a keen eye on shifting economic winds.