More people renting, less buying sf homes?

Shocker! Sky-high housing prices and interest rates have pushed people to rent.

Demand for Rental Housing Drives Unexpected Jump in Building

Apartment construction is climbing steadily, while the construction of single-family homes is declining

By Rebecca Picciotto, WSJ

Updated Aug. 19, 2025 2:54 pm ET

U.S. housing construction surged in July, exceeding expectations, driven by a strong recovery in the multifamily market.

Housing construction in the U.S. jumped much more than expected last month, reflecting a recovery in the multifamily market as developers respond to demand for rental housing.

Housing starts, a measurement of home construction, were 12.9% higher in July compared with a year earlier, according to Census Bureau data on Tuesday. Economists surveyed by The Wall Street Journal had expected a 2.8% increase.

Rental housing drove the big increase. Construction of projects with five units or more was 27.4% higher in July compared with last year, while starts of single-unit projects were 7.8% higher.

Some of that growth is merely a return-to-normalcy after an abnormal pause in construction last summer, when many builders were waiting for a potential interest-rate cut in the fall.

But the July spike also represents a more fundamental divergence in the housing market: Apartment construction is recovering steadily while single-family construction is declining. Construction of projects with five units or more is 18.1% higher from the start of the year.

More would-be home buyers are renting for longer, waiting for mortgage rates to fall and driving up demand for apartment leases. That boost in rental demand, along with an expectation that national rent growth will rebound by the end of this year, has helped multifamily developers secure financing for new projects.

“It’s not a fluke,” said Robert Dietz, chief economist at the National Association of Home Builders. “It goes back to that same housing-affordability story.”

Home-builder confidence, meanwhile, is hovering around the lowest levels of the past decade. That reflects stubbornly high interest rates and increasing material costs because of tariffs. Since the start of the year, single-family housing starts are down 4.2%.

Those high mortgage rates, along with high home prices, are also keeping many prospective buyers on the sidelines. In turn, builders are struggling to sell an oversupply of single-family homes that piled up when interest rates were low and construction was less costly. As they slowly work through that supply glut, builders have pulled back on building more of these homes.

Much of the new construction is concentrated in the Midwest, where housing costs are relatively affordable compared with the rest of the U.S.

Despite the uptick in home construction last month, the outlook for builders through the rest of this year is still murky. The number of new building permits, a gauge of planned construction, was 5.7% lower in July than last year.

That was also worse on single-family homes: Single-family home permits were 7.9% lower last month compared with a year earlier and 1.8% lower for multifamily.

“That largely reflects still-present economic uncertainty,” said Moody’s economist Matthew Walsh.

Roughly 60% of home builders say their suppliers have increased material costs because of President Trump’s tariff policy, according to Dietz. Builders are also worried about immigrant deportations threatening their workforces, which rely heavily on foreign-born labor.

“We haven’t really seen that manifest in the data yet, but I think that is the next thing to come,” Walsh said.

Write to Rebecca Picciotto at Rebecca.Picciotto@wsj.com