The Desert/Mountains region, a perennial favorite among apartment investors, is about to witness a monumental transformation in its housing market. As supply in this region is set to triple pre-pandemic levels, the opportunities—and challenges—facing investors are significant. Developers are ramping up projects, and the number of new apartments scheduled for completion is higher than ever before. For those eyeing this market, understanding the implications of this supply boom is essential to making informed investment decisions.
Unprecedented Growth in Supply
In the year ending in the second quarter of 2024, the Desert/Mountains region saw a significant uptick in apartment deliveries, with approximately 60,000 new units hitting the market. This surge in supply is more than double the typical volumes seen before the pandemic when the region usually added around 20,000 to 30,000 units annually. A major contributor to this growth is the Phoenix metro area, which alone accounted for nearly 20,000 units.
However, what’s even more striking is that the supply pipeline shows no signs of slowing. In the year ending in the second quarter of 2025, developers are expected to deliver roughly 85,000 units across the region. This represents a dramatic increase in the number of apartments being built, signaling that developers are optimistic about the long-term demand for rental housing in the region.
The Supply-Demand Imbalance
While demand in the Desert/Mountains region has been strong, it hasn’t been able to keep pace with the historically high levels of new supply. This trend is expected to continue into 2025, leading to concerns about a potential oversupply in the market.
Before the pandemic, apartment demand generally kept up with the more moderate pace of supply. But with the recent explosion in development, some markets may experience a glut of new apartments that outpaces current demand. Phoenix, in particular, has been a hotspot for development, and while its population growth has been robust, the rapid influx of new units could create a temporary mismatch between supply and demand.
For investors, this creates both risks and opportunities. On the one hand, an oversupply of apartments could put downward pressure on rents, leading to lower returns in the short term. On the other hand, for those with a longer-term investment horizon, the region’s fundamentals—strong population growth, job creation, and overall economic resilience—suggest that demand will eventually catch up to supply.
What’s Driving the Boom?
Several factors are driving this surge in apartment construction in the Desert/Mountains region. First, the region’s affordable cost of living, relative to coastal markets, has attracted a steady stream of new residents. Cities like Phoenix, Las Vegas, and Salt Lake City have seen a significant influx of people, many of whom are leaving high-cost areas in search of more affordable housing and better job opportunities.
Second, the Desert/Mountains region has become a magnet for businesses, especially in the tech and manufacturing sectors. Companies relocating to these areas have created thousands of jobs, further fueling demand for housing. With more residents comes a need for more apartments, and developers are racing to meet this demand.
However, not all of this demand is translating into immediate occupancy. While the long-term outlook for the region remains positive, the sheer volume of new units being delivered in such a short period could lead to temporary vacancies and slower rent growth in the near term. Investors should be mindful of these short-term headwinds, especially if they are relying on aggressive rent increases to meet their return targets.
Opportunities for Savvy Investors
Despite the risks of oversupply, there are still plenty of opportunities for investors in the Desert/Mountains region. As the market becomes more competitive, those who can identify the right submarkets and focus on delivering value to renters will likely be the most successful.
For example, not all areas within the Desert/Mountains region will be equally affected by the supply surge. Submarkets with strong population growth, limited new construction, and high barriers to entry may be better positioned to absorb the new supply. In these areas, demand is likely to remain robust, and rents could continue to grow, albeit at a slower pace than in previous years.
Moreover, as developers flood the market with new luxury apartments, there could be increased demand for more affordable housing options. Investors who focus on Class B and C properties—or those willing to invest in value-add renovations—may find less competition and more stable returns. These properties are often more insulated from the fluctuations in supply and demand that affect newer, high-end developments.
The next year will be a pivotal one for the Desert/Mountains apartment market. While the sheer volume of new supply may lead to short-term challenges, the region’s long-term prospects remain strong. For investors, the key will be navigating this period of increased competition and focusing on markets and properties that offer long-term value.
Investors who can take advantage of temporary market dislocations—whether by acquiring properties at a discount, repositioning existing assets, or targeting underserved submarkets—are likely to see the best returns. While the short-term outlook may be marked by volatility, the Desert/Mountains region remains one of the most promising areas for multifamily investment in the United States. With the right strategy, investors can position themselves to capitalize on the region’s growth for years to come.
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