Why this matters: When adequate new construction starts are limited by either zoning or prohibitively high construction costs — as are affecting builders in 2025 — property prices rise excessively. Real estate agents and brokers looking to guide their practice by a review of available data need to understand the connection local for-sale inventory, jobs and construction starts have on determining property prices which permit a stable rate of turnover in the community.
Slow to start, priced to sell now
Single family residential (SFR) construction starts during the six-month phase ending August 2025 were 13.3% down from the same phase one year earlier. During the same six-month phase, multi–family construction starts were up 16.7% from a year earlier.
For the year 2024, multi-family construction experienced a 26% decrease from the prior year, with 39,156 new units started. Demand for multi-family rentals has generally been higher during this past decade compared to new SFRs. But new multi-family construction to meet demand continues to hit roadblocks in the form of labor and supply shortages, lack of entrepreneurial local general contractors and uncertainties about tariffs on the price of materials — on top of politically vocal not-in-my-backyard (NIMBY) advocates.
In contrast, SFR construction starts in 2024 were up 8% from the previous year, for a total of 61,229 new SFRs started. This upward movement follows a construction bounce in 2021, the surge then being the result of homebuyer fear of missing out (FOMO), low home-resale inventory, and demand for remote locations where zoning is not used to interfere with construction starts as occurs in wealthier coastal urban centers.
And yet, compared to the 150,000 SFR starts achieved in 2005 at the height of the millennial boom, the 61,229 SFR starts achieved in 2024 were just a fraction of the starts needed to meet demand.
State-initiated legislative efforts to add to the low- and mid-tier housing stock have focused on encouraging more multi-family construction in recent years. As a result, metro areas with the highest annual increases in construction include Sacramento, Riverside and San Diego. The most anemic growth occurs where zoning remains restrictive for housing, including San Francisco, San Jose and Los Angeles.
While builders, primarily local general contractors, were beginning to cash in on legislative incentives and rising homebuyer demand, leaping mortgage rates and spiraling sales volume and prices crushed builder sentiment in 2022, causing starts to plummet.
Since the 2022 peak in pricing, housing across all price tiers in California’s major metro areas struggled to keep up with consumer inflation. As the trend setter, the most expensive housing felt the effects of the real estate recession first. As of June 2025, the middle- and high-tier priced housing across San Francisco, Los Angeles and San Diego are flat, having risen less than a full percentage point since May 2022.
The downward trend is more pronounced comparing June 2025 with the same time a year earlier, observing a 1% drop in price across all tiers in the same metro areas. This pressure on pricing drives more competition between sellers of a used home with builders offering newly constructed housing at a lower cost.
A new study published in July 2025 showed existing California homes were priced significantly higher than new ones. One of the few states with this reversal, Californians looking to buy new homes face the largest difference in price compared to any other state in the country. California homebuyers purchasing an existing home are facing 24.7% higher prices than buyers of new homes.
With prices overall dropping in the state, builders are motivated to grab the attention of buyers before recessionary prices push potential homeowners to wait for all home prices to bottom. Sellers of existing housing on the other hand may pull their property from the market rather than drop asking prices to compete with already less expensive brand-new homes.
Thus, residential construction starts will not reach their full potential until after the coming economy-wide recession. Prices will likely bottom around 2028 as the real estate recovery begins to work its way out of its recession.
Updated September 26, 2025.
Chart 1
This chart illustrates the number of California residential construction starts during semi-annual phases ending in February and August.
Chart update 9/24/25
Six-month period endingAug 2025Aug 2024Annual changeSFR Starts 28,63332,926-13.3%Multi-family Starts 23,32519,982
+16.7%
Chart 2
Chart update 03/25/25
2024202320222005 peakSFR Starts
61,229
56,655
62,937
154,700Multi-family Starts
39,156
53,052
55,153
50,300
*Forecasts are made by firsttuesday and are based on current new home sale trends, actual construction starts and current government policies.
Detached single family residential construction trends in California:
28,552 SFR starts took place in the six-month period ending August 2025. This is 4,374 fewer starts than occurred during the same period one year earlier, a 13.3% decrease.In 2024, SFR starts totaled 61,229. This is up 8%, or 4,574 starts, from 2023.For perspective, this cycle’s peak year in SFR starts was 2005 with 155,000 starts. The lowest year was 2011 with 22,000 starts, the year before the recovery set in after the Great Recession of 2008.
Detached SFR forecast:
firsttuesday‘s projection for SFR starts in 2025 is a decrease from the prior year, as is currently the case with 2025 down 6.6% compared to 2024 as of August. The forecast for 2025 is most affected by the downward pressure brought on by higher interest rates which slashed buyer purchasing power, and uncertainties which increases caution among consumers due to trade embargos and taxed imports. Expect SFR starts to remain below their potential in the next two plus years, until a recovery from the next recession picks up steam, likely after 2028.Subdivision final reports will remain low until local developers determine a return of older first-time homebuyers is on the horizon.The next peak in SFR starts will likely occur during the boomlet period in the years following 2028.
Multi-family housing construction trends:
23,325 multi-family housing starts took place in the six-month period ending August 2025. This is 3,343 more starts than occurred during the same period one year earlier, a 16.7% increase.39,156 multi-family housing starts took place in 2024. This was 26% lower than 2023, and below 2018 when multi-family starts hit their most recent peak.For perspective, this past cycle’s peak year in multi-family housing starts was 2004 with 61,500 starts. The lowest year was 2009 with just 9,500 multi-family housing starts.
Multi-family housing forecast:
firsttuesday forecasts multi-family housing starts to be down in 2025 from the past year. As the economy stumbles, builders of residential improvements are hampered by increased inflation from induced shortages in construction materials, workers panicked over volatile deportation conditions, mortgage lenders keeping a tight fist on funds, and taxes remaining elevated on imports. These dynamics worsen as long-term interest rates continue to rise over the coming decade, impeding buyer purchasing power.Multi-family housing starts were expected to rise at a gradual pace beginning in 2020, as several legislative changes aimed at increasing multi-family construction encouraged more building of dense, low- and mid-tier housing. However, pandemic disruptions and tightening lines of credit pushed multi-family construction numbers down significantly in 2020-2021, picking up slightly since 2022.For 2025, and likely 2026, we will see a much diminished residential development environment as the USA moves into its first world-wide trade war in 90 years concurrent with the population’s consolidation into larger households per unit. Opportunities for residential construction have been set aside until an industrial revolution condition is reinstalled in the USA, after moving into higher education and resulting skills following the end of the American industrial revolution around 1900.The next peak for multi-family housing starts will likely appear after 2028 and beyond, but only after we have completed the coming recession and moved into recovery.
Statistics related to California housing:
14.88 million total housing units existed in California in 2024, 13.8 million of which are occupied and 7.7 million of which are owner-occupied, according to the U.S. Census Bureau. This continues a slight increase over prior years.Prior to 2020, California population growth had been increasing at a rate of 0.5%-1% per year. But California’s population has since begun to decline, the result of more deaths than births alongside more residents moving to other states in search of a lower cost of living than those moving in. As an offset, those moving in possess higher skills and wealth than those moving out of California.Roughly 18.3 million people were employed in California in December 2024. This is just over the number of jobs held at end of 2019, prior to the 2020 recession, according to the California Employment Development Department (EDD).California’s residential rental vacancy rate was 4.8% in 2024.
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