U.S. housing starts fell 15.4% in May to a seasonally adjusted annual rate of 1.18 million units, the sharpest monthly drop in nearly two years and a fresh warning that elevated borrowing costs are choking the homebuilding pipeline. The data, released June 16 by the Census Bureau and the Department of Housing and Urban Development, arrived one day before the Federal Reserve was expected to leave interest rates on hold.
Apartment construction drove the May collapse
The headline figure hides a split market. Single-family starts slipped a modest 1.9% to an annual pace of 882,000, but multifamily construction — apartment and condo buildings with five or more units — cratered, pulling the overall total down from a revised 1.39 million in April. Measured against May 2025, total starts ran 8.7% lower, the Census release showed.
That divergence matters because apartments are where most new rental supply comes from. When multifamily groundbreakings stall, the relief that renters had been counting on after two years of cooling rents gets pushed further out. "The pipeline that was supposed to ease rents in 2027 is thinning out fast," said an economist at a national homebuilders' trade group who spoke on condition of anonymity because the figures were still being reviewed internally.
Apartment developers have been hit from two directions at once. The cost of capital remains punishing, and a wave of units that broke ground during the 2021-2022 building boom is only now finishing, flooding some markets with new supply and pushing rents down enough to make fresh projects look risky. In overbuilt metros across Texas and the Southeast, landlords are offering months of free rent to fill buildings, a signal that prompts lenders to tighten and developers to wait.
High rates keep developers on the sidelines
Builders in fast-growing Sun Belt metros such as Dallas-Fort Worth have spent the spring trimming construction crews and delaying projects that no longer pencil out at current financing costs. Construction loans tied to the prime rate have stayed expensive even as headline inflation eased, and many regional banks pulled back from commercial real estate lending after the stress of the past two years.
Permits, a forward-looking gauge of future building, offered little comfort. Privately owned units authorized by permits came in at an annual rate of 1.41 million, down 0.7% from April and 0.2% below a year earlier. Single-family permits ticked up 0.6% to 886,000, but the broader trend points to a market that is bracing rather than expanding.
The political backdrop
The timing sharpened the stakes on Capitol Hill, where the Senate had just passed a sweeping housing bill aimed at the supply crunch. Lawmakers in both parties pointed to the weak construction data as evidence that the affordability squeeze is structural, not cyclical. The dynamics are detailed in our report on the Senate's 87-8 passage of the ROAD to Housing Act.
Economists caution against reading too much into a single volatile month — multifamily numbers swing hard, and a few large projects can move the national rate. Still, the broader picture is one of a construction sector idling at a time when the country remains millions of homes short of demand. The Census Bureau itself flags that month-to-month changes in starts often carry wide margins of error, and the agency typically needs several months of data to confirm a turning point.
For now, the May report adds to a string of soft readings on the interest-rate-sensitive corners of the economy. Whether builders return in force depends largely on the path of borrowing costs — and on whether Washington's new housing push can lower the regulatory and financing barriers that developers blame for keeping shovels in the ground.