After Two Years of Heightened Activity, Houston Multifamily Development to Slow

Multifamily deliveries slowed in Houston during the first quarter following a peak in 2024. Approximately 3,750 units came online, marking the lowest quarterly total since the fourth quarter of 2022. Additionally, the development pipeline has contracted by 57% over the past year with fewer than 13,700 units currently under construction. Despite the recent slowdown, the cumulative impact of the supply surge in 2023 and 2024 dragged on property fundamentals. Both rents and vacancies softened slightly during the first quarter. Still, renter demand remains consistently strong in Houston, with net absorption exceeding 4,100 units during the first quarter, similar to the quarterly average of the trailing two years. Although rent growth has been modest at the start of this year, gains during the past 12 months have outpaced those recorded in other major Texas markets.

Multifamily sales activity in Houston continues to lag historical levels, but momentum is building. After a strong close to 2024, transaction volume during the first quarter increased by 63% compared to the same period last year. Multifamily sales in the Lake Houston area have surged recently. Traditionally considered a tertiary submarket, Lake Houston is leading the region in transaction volume so far in 2025, accounting for approximately 30% of all sales. This area has benefited from strong population growth and solid property fundamentals in recent periods. Additionally, investors have shifted to newer vintages, with properties built since 2010 comprising more than 40% of year-to-date transactions. By comparison, properties from the 1970s accounted for the largest share of sales last year.

Looking ahead

Supply-side pressures in Houston’s multifamily market are expected to ease in the coming quarters, with annual completions projected to return to trend following elevated inventory growth in 2023 and 2024. Projects totaling 12,000 units are scheduled to come online this year, slightly above the long-term average delivered from 2011 to 2022. The market’s recovery from the recent development surge appears to be progressing quickly. One year ago, the development pipeline stood at nearly 32,100 units under construction. By the end of the first quarter of 2025, that number had been slashed by more than half, retreating to approximately 13,700 units. Multifamily permitting activity also slowed below historical norms in 2024, a trend that will likely continue in 2025. Vacancy conditions are expected to improve as the cooling rate of inventory growth is projected to be outpaced by the region’s steady renter demand.

Sales velocity in Houston’s multifamily market could be mixed in the coming quarters, though the overall outlook remains positive. While sales activity may be uneven in the coming months, transaction volume is projected to rebound in the second half of 2025, and annual totals should come close to matching 2024 levels. Supply-side pressures are anticipated to continue easing, positioning Houston ahead of other major markets. Many buyers who have remained on the sidelines over the past two years are likely to return as supply growth stalls and broader acceptance of the current interest rate environment takes shape. Property fundamentals are expected to improve in the near term, which should encourage greater investor activity moving forward. The region’s strong population growth and healthy labor market will continue to drive renter demand, supporting investment in the coming years.

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