For years, U.S. real estate hotspots like Dallas, Phoenix, and Miami were filled with cranes, new towers, and nonstop construction. However, that is not the case anymore. Construction starts are slowing down, even in these robust markets. Developers once rushed to launch projects, but are now hitting pause.

What is causing this sudden shift? Let us discuss why new construction is slowing down, and how this trend could push investors to focus more on buying existing properties instead of building from scratch.

Let’s Take a Look at the Statistics

• May 2025 U.S. housing starts plunged 9.8% to a 1.256 million annualized rate—the lowest since May 2020. Multifamily starts fell steeply too, falling 30.4%, while single-family starts remained mostly flat.
• June single-family starts hit an 11-month low with a drop of 4.6%. Building permits for future single-family homes dropped to a two-year low, signalling further softness ahead.
• The National Association of Home Builders (NAHB) warned of persistent challenges which included affordability, elevated interest rates, and inflation. These are forecasted to depress starts through 2025.

But Why are Construction Starts Slowing Down?

The Cost of Capital Has Increased-

The biggest reason new projects aren’t breaking ground is financing. With interest rates at multi-decade highs, borrowing has become significantly expensive.

• Developers now face higher debt service costs, pushing many projects into the red.
• Construction loans, which float above benchmark rates, are even less appealing.
• Lenders are tightening standards and demanding more conservative underwriting.

The projects that may have looked profitable two years ago simply don’t work in today’s high-rate environment.

Construction Inflation Persists-

Even if we assume that financing was easier, construction costs still would remain a major hurdle.

• Materials like steel, lumber, and concrete are still priced well above pre-pandemic levels.
• Supply chain disruptions continue to cause unpredictable swings in pricing.
• Developers are forced to build in large cost contingencies, making budgets balloon.

This construction inflation makes many projects financially not feasible given today’s slower rent growth.

Labour Markets Remain Tight-

The U.S. construction industry has been struggling with labour shortages for years, and the issue is only getting worse.

• Skilled workers are aging out, and fewer young workers are entering the trades.
• Wages are climbing as competition for labour heats up.
• In markets like Texas and Arizona, shortages make scheduling both costly and unpredictable.

This translates into longer timelines and higher costs, none of which are viable to face.

Local Permitting Delays- An Added Burden-

Even in traditionally pro-growth cities, permitting has become a mammoth task.

• Municipalities are overwhelmed, creating months-long approval delays.
• Zoning battles and community pushback add more layers of red tape.
• For developers already carrying expensive land and financing, these delays can sink a project before it starts.

Permitting delays end up making many projects far too risky.

What Should You Choose: Build New or Buy Existing?

Shifting focus from new development to existing acquisitions could be a smart move in today’s market:

Why Buying Existing Structures Makes Sense Right Now:

• Lower costs and fewer risks: Avoid sky-high financing expenses, unpredictable material prices, labor shortages, and permitting delays.
• Faster income generation: Existing properties can often start producing cash flow much sooner than new builds.
• Stronger negotiating power: With buyer demand cooling and inventory sitting longer, investors may secure more favourable purchase terms.

Market Evidences for the Shift:

• Builders are already cutting prices- 37% of builders reduced prices in June, the highest share since 2022 (NAHB, via MarketWatch).
• New construction starts have slowed significantly, reducing competition and making secondary-market acquisitions potentially more attractive.

Therefore, the data points to a clear conclusion: currently, it may be wise to buy existing rather than build new.

The slowdown in new construction isn’t just temporary, it instead provides a chance to reflect upon deeper challenges: high borrowing costs, stubborn construction inflation, labour shortages, and permitting delays.

For investors, this creates an opportunity. Pivoting to existing properties offers clearer income potential, shorter timelines, and lower risk exposure compared to starting from scratch. In today’s environment, buying existing may not just be the safer choice, it could be the smarter strategy.

Are you still confused what path to choose? Let’s underwrite your acquisition vs. new build strategy to help you decide! Reach us at info@therealval.com