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Multifamily Market Commentary – September 2019

Location, Location, Location: Multifamily Construction Costs Vary by City

Over the past few years there has been a common refrain among multifamily developers that construction costs are 

skyrocketing and that only higher-end, class A projects can “pencil out” to be profitable. There have been a number of 

reasons given for these increasing costs, and they comprise the usual suspects: labor, materials, land, and local 

regulations. But are those factors the real culprits? What about the differences in hard and soft construction costs? And 

what were the actual definitions of both? 

To gain a better understanding of the magnitude of both hard and soft construction costs, Fannie Mae approached The 

Gordian Group, Inc., the firm that provides the well-respected RS Means construction data, to conduct a multifamily 

construction cost survey. The goal of the survey was to provide details and clarity regarding the cost of multifamily 

construction, broken down into both hard and soft costs categories, as well as the financial and timeline impacts of 

multifamily permitting and regulation. This data was collected at both the national level and in six of the nation’s major 

cities: Atlanta, Chicago, Dallas, New York, San Francisco, and Seattle. For the sake of uniformity within the survey, RS

Means used a 4- to 7-story building with a brick veneer and steel frame in each city. Furthermore, since land costs are 

extremely complex and vary from city to city and even neighborhood to neighborhood, RS Means did not include land 

costs in their total construction cost analysis.

The results of the survey were both surprising and unsurprising, as they confirmed some long-standing multifamily 

industry chatter. For instance, the survey revealed that building in high-cost cities, such as New York and San Francisco,

are significantly more expensive than building in cities with lower costs of living, such as Atlanta. Furthermore, outside of 

San Francisco, the permitting process did not have much of an impact on the completion date of a project in the cities 

surveyed. Lastly, due to ongoing labor shortages, the cost of labor has the potential to greatly add to the total costs of a 

multifamily construction project in a given city. 

Hard and Soft Construction Costs Defined

Hard costs, as defined by RS Means, are assigned to the following categories: Substructure, Shell, Interiors, Services, 

Equipment, Furnishings, Contractor Overhead, and Profit. 

Substructure includes foundations, walls, and the more structural elements of construction. Shell includes flooring, 

window construction, and roof construction. Interiors include partitions, doors, finishes, and stairs. Services includes 

elevators, plumbing, energy supply, and piping. Equipment consists of architectural equipment, and Furnishings includes

furniture, décor, etc. that are part of the finished building. 

On a national level, the Shell category equates to approximately 24 percent of total multifamily construction costs in 4- to 

7-story multifamily buildings. The Services category is actually the most expensive, accounting for nearly 44 percent of 

total project costs in 4- to 7-story multifamily buildings. 

The soft costs portion of multifamily construction are somewhat simpler to define than the hard costs and are

consolidated into just one category. RS Means defined soft costs as architectural and engineering fees, consulting fees, 

legal and accounting fees, permit fees, any unique review fees, impact fees, environmental fees, feasibility study fees, 

testing fees, and an assortment of required studies, including but not limited to site surveys, traffic studies, geotechnical 

studies, and other forms of testing. Nationwide, contractor fees, which are part of hard costs and include contractor’s 

overhead and profit account for approximately 25 percent of the total multifamily construction costs for 4- to 7-story 

buildings. 

Multifamily Hard Costs Differ Greatly by Location

As expected, multifamily hard costs are highest in New York and San Francisco. On the opposite end of the scale, both 

Dallas and Atlanta were the least expensive among surveyed cities, which also comes as no surprise. Furthermore, both 

Dallas and Atlanta are below the national average in regard to hard construction costs per square foot. 
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The biggest driver of higher construction costs came down to the cost of labor. The survey found that labor costs more in 

New York, San Francisco, and Chicago due to the presence and influence of construction unions. According to RS Means

survey respondents, it is less expensive to build a multifamily property in Atlanta, Seattle, and Dallas. 

Source: RS Means

Multifamily Soft Costs Influenced by Timelines

Overall, there was not much difference across the six cities regarding their soft costs for multifamily construction. However, 

the developers surveyed did reveal some of the factors that impacted the high level of construction costs. The survey revealed 

that – unsurprisingly – soft costs were the most expensive in both San Francisco and New York due to extensive building 

requirements, zoning codes, and regulations. 

Furthermore, the survey showed that the permitting process took longer than suggested in all six cities. In addition to a 

prolonged permitting process, developers also incurred what they described as surprise development requirements 

necessary for the construction project to proceed. One of the constant findings in the soft costs portion of the survey 

indicated that building codes seem to be constantly changing and evolving, which caused overall construction costs to rise. 

Regulatory Findings Reveal Significant Time Delays

The survey found that there were many regulatory barriers that impacted the time required to construct new properties. 

One key survey question concerned the amount of total time it took to actually start site work on a new project and how 

much of that timing was influenced by each city’s permitting and regulatory process before developers were able to get crews 

on the ground. The survey revealed that more often than not, the cities themselves underestimated the amount of time the 

permitting review and approval process would take. The survey results revealed that 65 percent of the time the permitting 

process took three to six months longer than what the city had originally projected. Only 30 percent of the survey

respondents reported that the regulatory process was in line with what was stated by the local city departments. 

Multifamily Hard Construction Costs per Square Foot
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Permitting Timelines Varied Greatly

Of the cities included in the survey, Dallas had the shortest amount of time between the permitting process and the start of 

construction on a new multifamily project. The time difference in Dallas equated to about three months on average. By 

comparison, developers indicated that in New York and Seattle it took about eight months to complete the multifamily 

permitting processes. 

Of the cities surveyed, the multifamily permitting process seemed to take the longest amount of time in San Francisco. The 

time between permitting and actual site work in San Francisco tended to exceed 12 months on average.

Source: RS Means

Compliance Costs Differ as Well

Interestingly, the survey results suggested that permitting, zoning, and other local regulations typically do not add much to

the total cost of a project, at least in the majority of the cities surveyed. For multifamily development projects located in

Seattle, New York, Dallas, Chicago, and Atlanta, total compliance costs were between 2.0 percent and 4.0 percent of total 

project costs. 

By comparison, San Francisco was 

the outlier, with respondents stating 

that compliance costs accounted for 

more than 10 percent of the total 

project costs for developments in 

that city. Even though regulatory 

compliance costs may not account 

for a large portion of the total project 

costs, they are still significant as all 

regulatory requirements must be 

met before any actual site work can 

begin. 

Source: RS Means

Time Delay From Permitting Process to Start of Construction in Surveyed Cities

Regulatory Compliance Costs as a % of Total Project Costs 
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Soft Costs a Big Driver of Overall Project Costs

In addition to hard costs and regulatory costs, the survey also asked multifamily developers in the six selected cities about 

soft costs.

The survey revealed that soft costs are typically within the range of 15 to 25 percent of a total multifamily development 

project cost. Of the developers surveyed in Atlanta, Chicago, Dallas, and Seattle, the majority estimated that local soft costs 

equated to less than 15 percent of their total project costs. 

Similar to hard costs, soft costs in New York and San Francisco are higher than the other surveyed cities. The majority of 

developers in both New York and San Francisco responded that soft costs in those two cities equated to more than 20 percent 

of the total project cost. 

Soft Costs Rankings

For the soft costs portion of the survey, RS Means identified nine different types of soft costs that could be incurred by 

multifamily developers in each city and then asked respondents to rank the costs.

Developers in all six cities ranked architectural and engineering fees as the most expensive soft cost for a multifamily 

development project. Permitting fees came in second. New York was the only city that did not have permitting fees as the 

second highest soft cost; there, it was legal and accounting fees. 

Rounding out the top three was consulting fees, though it was not unanimous among all of the survey respondents. 

Multifamily developers in Atlanta, Dallas, and Seattle chose impact fees as the third-highest soft cost expenditure, while 

Chicago, New York, and San Francisco ranked permitting fees third. 

Source: RS Means

Soft Costs Rankings from Most to Least Expensive
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Real Estate Development Costs Not Significant 

For the purposes of this survey, RS Means did not include land or land financing costs in the categorization of soft costs. 

Land costs vary greatly by city, submarket, neighborhood, and site location, and are not tied to the actual cost of constructing 

the building. 

Nevertheless, the question was included separately in the survey. Across all six cities, respondents stated that, on average, 

real estate development fees only accounted for approximately 4.0 percent of total multifamily development project costs. 

New York had the largest real estate development percentage of project cost at 5.0 percent, while both Chicago and Dallas 

had the lowest percentage of project costs at just 3.0 percent. Included in the criteria for defining real estate development

fees in the survey were financing costs, interest, tax credits, and any loan fees. 

Building Codes Result in a Big Impact on Project Timelines

The survey also looked at industry factors that could potentially impact project costs and completion dates. One of the 

industry factors was the impact of building codes on cost. The developers surveyed in the six cities stated that, on average, 

stricter building codes increased total multifamily project costs by about 5.8 percent, but it varied by city. 

For example, developers in Atlanta reported that stricter building codes only increased their total project costs by about 3.0 

percent, which was the lowest impact percentage in the survey. By contrast, San Francisco developers reported that stricter 

building codes increased their project costs by approximately 8.0 percent. 

The average of 5.8 percent of total project costs for stricter building codes increased project completion time by two months 

on average. Even though Atlanta had the lowest impact from stricter building codes, the city had the highest impact in regard

to timelines, at approximately three months. San Francisco trailed right behind Atlanta in regard to the impact of stricter 

building codes. 

Overall the survey revealed that there was not much variance from the impact of stricter building codes on project timelines 

in the six cities. 

Source: RS Means

Impact of Stricter Building Codes on Total Project Time in Months
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Cost of Labor an Ongoing Issue 

Labor costs and a shortage of construction workers continue to be a concern for developers. Overall, the survey revealed 

that labor issues have the potential to worsen as the average age of the construction laborers has increased to 43, up from 

36 just 10 years ago. 

In addition, the survey found that 80 percent of respondents claimed labor shortages increased the difficulty of 

completing projects on time. San Francisco and Atlanta were the two surveyed cities impacted the most by the costs of 

labor. Both of these cities reported that due to the difficulty of finding qualified construction workers, labor could possibly 

account for an additional 15.0 percent of total project costs. By contrast, developers in New York City were the least 

impacted by the ongoing labor difficulties compared to the cost of labor.

More Expensive Cities are Similar in Cost Levels

RS Means categorized the six cities surveyed into three different cost groups. San Francisco and New York were deemed the 

high-cost group; Seattle and Atlanta were identified as the middle-cost group; and lastly Dallas and Chicago were placed 

into the low-cost group. 

The premium to build in San Francisco and New York is significantly higher than the cost to build in the other two groups. 

Hard costs alone approach close to $350,000 in each of these cities. As a result, the elevated costs of renting in cities in the 

high-cost group is attributable to elevated development and construction costs. 

 

Source: RS Means

 

Source: RS Means

Metro

Hard 

Costs/Sq. 

Ft.

Total Hard 

Costs 

$/Unit

Time Delay 

from 

Permitting

Compliance 

Costs* as a 

% of Total 

Costs

Soft 

Costs as a 

% of 

Total 

Costs

Real Estate 

Development 

as a % of 

Total Costs

Impact of 

Building 

Codes as 

a % of 

Total 

Costs

Cost of 

Labor as 

a % of 

Total 

Costs

Atlanta $180 $200-$275K 8-12 months 3% <15% 4% 3% 15%

Chicago $251 $150-$200K 6-8 months 4% <15% 3% 4% 5%

Dallas $171 <$150K 3-6 months 3% <15% 3% 6% 8%

New York $277 $275-$350K 8-12 months 3% >20% 5% 4% 3%

San Francisco $268 $275-$350K >12 months 11% >20% 5% 8% 15%

Seattle $217 $200-$275K 8-12 months 4% <15% 4% 7% 8%

Hard Costs of a Multifamily Project in a Selected City ($/Unit)

Comprehensive Survey Results – Multifamily Development Costs by City
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High Construction Costs + High Land Prices = High Rents

Construction costs continue to rise as a direct result of a few factors. First, the labor shortage has increased the demand for 

skilled construction workers. Since there is a dearth of skilled workers, the average hourly earnings have increased 

dramatically since 2005. As of May 2019, hourly wages approached $29/hr. Furthermore, the cost of the materials necessary 

for construction have fluctuated over the last ten years. These materials include, but are not limited to, lumber, gypsum,

and concrete. As of May 2019, the percent change in the prices (year over year) for both lumber and gypsum was negative.

Lastly, land prices continue to rise as well. As of Q2 2019, the cost of land for a multifamily development site was 

approximately $53,000/unit. During the recession the price fell to as low as $33,000/unit and increased to a peak of 

$65,000/unit in Q4 2015. For the last five years prices have consistently stayed in the $50,000-$55,000/unit range. 

Source: BLS Producer Price Index Source: Bureau of Labor Statistics

 

Note: Prices are per buildable unit, based on a trailing 12-month average 

Source: Real Capital Analytics 

Materials Year-Over-Year Percent Change

Average Hourly Earnings of Non-Supervisory 

Construction Workers

 Multifamily Development Site Land Prices
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Atlanta Multifamily Pipeline Elevated

Atlanta is one of the easier and less costly places to build multifamily developments. When analyzing the survey results for 

Atlanta and comparing them against the activity in the new construction pipeline, it appears that developers also believe 

that multifamily construction in Atlanta is in their favor. Since 2011, approximately 54,000 apartments have been added to 

the Atlanta metro area. Of the 54,000 apartments added to the city, the highest amounts of activity took place in 2017 and 

2018 when more than 20,000 apartments came online.

Activity in Atlanta has slowed down, albeit slightly. According to the Dodge Data & Analytics Supply Track data, there are 

approximately 16,000 apartment units underway scheduled for delivery through 2020. Even though projects in the planning 

stages of the construction pipeline could deliver later than estimated, there is still a substantial amount of activity in the 

pipeline for Atlanta, at more than 51,000 units. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

Atlanta Multifamily Construction Pipeline Since 2011
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Chicago Multifamily Pipeline Staying on Pace

The RS Means survey results for multifamily construction in Chicago were fairly average among the cities surveyed. Still, 

Chicago is neither expensive nor an easy city to build in, but rather right in line with the findings of the cost and difficulties 

of the surveyed cities. Since 2011, approximately 46,000 apartments have been added to the Chicago metro area. Of the 

46,000 apartment units added, the highest amounts of activity took place in 2017 and 2018 when approximately 19,000 

apartments units came online.

Furthermore, the activity has stayed on pace with previous years. There are approximately 14,000 apartment units 

underway scheduled for delivery through 2020. Even though projects in the planning stages of the construction pipeline 

could deliver later than estimated, there is still a substantial amount of activity in the planning stages pipeline for Chicago,

at approximately 41,000 apartment units. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

Chicago Multifamily Construction Pipeline Since 2011
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Dallas Multifamily Pipeline Fairly Robust

Over the last decade, industry chatter indicated that constructing housing, both single-family and multifamily, in all of Texas 

is not difficult, and the RS Means survey results appear to confirm this assessment. Of all the six cities included in the survey, 

Dallas was the least expensive and quickest city for developers to complete a multifamily construction project.

Since 2011, approximately 89,000 apartments have been added to the Dallas city area. Of these 89,000 apartments, the 

bulk of the metro’s activity has taken place over the last three years, when approximately 47,000 apartments have come 

online.

Furthermore, the activity has not slowed down. As seen in the chart, there are approximately 28,000 apartment units 

underway scheduled for delivery through 2020. There is still a substantial amount of expected multifamily activity in the 

construction pipeline for Dallas, with more than 32,000 apartments in various planning, underway, and completion stages. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

Dallas Multifamily Construction Pipeline Since 2011
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New York Multifamily Pipeline

The New York City metro area is expensive on all fronts, and, as shown in the survey results, multifamily construction costs 

in the city proper are among the most expensive in the nation. Of the six cities surveyed, New York was the most expensive 

in regard to hard costs, soft costs, and certain aspects of regulation and permitting. 

That level of expense has not stopped developers from building both in the city and in the area. Since 2011, approximately 

174,000 apartments have been added to the New York City metro area. Of these 174,000 apartments, approximately 

102,000 have come online over the past three years.

Activity has slowed down slightly. There are approximately 57,000 apartment units underway scheduled for delivery 

through 2020 and approximately 188,000 apartments in various stages of planning in the New York metro multifamily 

construction pipeline. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

New York Multifamily Construction Pipeline Since 2011
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San Francisco Multifamily Pipeline

Of the six cities surveyed, San Francisco was right on par with New York in regard to having the most expensive hard costs, 

soft costs, and regulation and permitting costs. In addition, the survey results suggest San Francisco has some of the biggest 

hurdles to face in regard to time delays from permitting and compliance costs. 

One likely result is that San Francisco’s pipeline activity has been much less rampant than other metros. Since 2011, 

approximately 20,000 apartments have been added to the San Francisco metro area. Of the 20,000 apartments added to 

the city, the bulk of the metro’s activity has taken place over 2016-2017, during which approximately 7,600 apartments came 

online.

Furthermore, the activity is on pace to reach new levels of development. There are approximately 10,000 apartment units 

underway scheduled for delivery through 2020 and approximately 34,000 apartments in various stages of planning in the 

multifamily construction pipeline. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

San Francisco Multifamily Construction Pipeline Since 2011
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Seattle Multifamily Pipeline Considered Average

The survey results for multifamily construction costs and timelines in Seattle were considered average. Since 2011, 

approximately 71,000 apartments have been added to the Seattle metro area. Of the 71,000 apartments, the highest amounts 

of activity took place in 2017 and 2018 when approximately 28,000 apartments came online.

Furthermore, the activity has stayed on pace with previous years. There are approximately 21,000 apartment units 

underway scheduled for delivery through 2020 and approximately 65,000 apartments in various stages of planning in the 

multifamily construction pipeline. 

Source: Dodge Data & Analytics Supply Track

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported to-date. As more projects are planned and 

tracked, figures in future periods might go up. 

Seattle Multifamily Construction Pipeline Since 2011
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Developers Remain Undeterred Despite Ongoing Cost and Labor Shortages

Labor issues continue to be an ongoing problem in the industry. Overall, the survey revealed that labor issues have the 

potential to worsen as there are fewer construction workers and those that are available are getting older. And yet the 

demand for multifamily units remains elevated, due to continued job growth, demographics, and increased rental household 

formations.

Multifamily developers remain optimistic about current and future demand for multifamily units and seem undeterred by 

protracted project timelines, labor issues, and overall costs. Yet, as a result, it appears that developers feel that only higherend multifamily projects are worth the investment in most of these cities, further exacerbating the dearth of affordable 

multifamily units. The survey results clearly demonstrate that the industry cannot simply build its way out of the housing 

affordability problem. Other alternative and innovative solutions are also needed. 

Francisco Nicco-Annan

Economist

Multifamily Economics and Market Research

September 2019

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research 

Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or 

expected results, are based on a number of assumptions, and are subject to change without notice. How this information 

affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts 

and other views on information it considers reliable, it does not guarantee that the information provided in these 

materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information 

underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other 

views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent 

the views of Fannie Mae or its management.