By Brad Butler
The lack of affordable rental housing in the United States has reached alarming levels, and the problem seems to worsen with each passing month.
As job creation has slowed in certain industries, many people are moving to urban areas in search of better employment opportunities, housing options and long-term economic stability. From the outside, this trend could make urban multifamily development look like an easy entry point into the business. But looks can be deceiving.
While urban markets offer many advantages, development in these areas is significantly more complex than in rural markets. Higher costs, regulatory hurdles and execution risk often offset the benefits of density and demand. In practice, urban multifamily development is best described as a love‑hate relationship — filled with opportunity, but rarely a smooth process.
The Pros
Availability of the trades: One of the biggest advantages of urban development is access to skilled labor. Across much of the country, developers are grappling with a shrinking pool of skilled tradespeople, which can lead to construction delays, cost overruns, and scheduling challenges. Larger metro areas, however, tend to have deeper and more diverse labor markets.
Skilled tradespeople are more readily available in cities compared with rural markets, where tradespeople may need to travel long distances or be pulled from competing job sites. While urban construction is inherently more complicated, developers often benefit from greater certainty around staffing and sequencing, which is extremely valuable in today’s market.
Product flexibility: Urban markets also support a wide range of multifamily product types. Cities can accommodate luxury apartments, workforce housing, affordable units, senior housing, student housing and mixed-use developments — often within the same submarket. This diversity allows developers to tailor projects to specific renter demographics and adjust strategies over time.
In contrast, rural markets tend to support far fewer product types, often limiting developers to standard workforce or affordable housing concepts. Urban density ultimately allows developers to target deep niches that would not otherwise be sustainable in rural areas.
Easier access to capital: Capital availability remains another critical advantage of urban development. Institutional investors, national lenders and debt funds generally prefer well-known, liquid markets with clear exit paths. As such, urban projects often have access to a broader range of financing options than comparable projects in rural areas.
The 10-year Treasury yield has stabilized somewhat over the past 12 months; however, recent uncertainty due to the war in Iran may impact this sooner rather than later. Nevertheless, in the abstract, lenders seem eager to deploy capital in 2026, particularly in larger markets they under-stand. While underwriting standards remain conservative, urban deals that pencil out can often secure financing more easily than projects in smaller markets.
Diverse employers and economic stability: Urban economies are typically supported by a broad mix of employers and industries. Such diversification helps stabilize demand during economic downturns. Even if one sector contracts, others often continue to drive housing demand.
Rural markets, by comparison, are often tied to one or two major employers. If those employers downsize or relocate, the impact on housing demand can be immediate and severe. Urban diversification does not eliminate risk, but it does reduce reliance on any single economic driver or employer.
The Cons
Unionized labor and higher wage structures: While urban markets offer access to labor, they are also far more likely to involve unionized construction. Union labor frequently comes with higher wage rates, strict work rules and reduced flexibility. In some cities, developers have little choice but to use union labor, particularly on large projects or those receiving public funding.
These labor structures can materially increase both costs and schedules, which must be carefully accounted for during the predevelopment phase of the deal. What urban markets offer in labor availability are often counterbalanced by increased labor expenses.
Higher land and storage costs: Land scarcity is one of the primary constraints of urban development. Suitable sites are limited, competition can be intense and the lots are priced accordingly. Beyond acquisition costs, urban sites also present logistical challenges. Many lack sufficient space for material storage, equipment staging or worker parking.
Developers frequently need to lease off‑site storage or rely on tightly choreographed just‑in‑time deliveries, increasing both cost and operational complexity. These issues are largely absent in rural development, where land is cheaper, and sites are more flexible.
Increased NIMBYism and entitlement risk: Higher population density also means greater public scrutiny. Urban developers are more likely to encounter neighborhood opposition, extended entitlement processes and political involvement — often referred to collectively as NIMBYism, or “Not In My Backyard.”
Public hearings, appeals and community resistance can delay projects for months or even years, driving up soft costs and injecting uncertainty into timelines. Rural developments in sparsely populated areas typically move through approvals quicker and with far less public resistance.
Rent control and regulatory constraints: Perhaps the biggest impediment to urban development is rent control. While intended to protect tenants, rent control laws cap revenue growth, which means that revenues may not keep up with expense growth in either the long-term or short-term and inherently limit exit valuations.
For developers and investors, these constraints can dramatically alter their perception of a deal. Markets with rent control often see reduced development activity, as underwriting becomes more challenging, and long‑term value creation is uncertain.
Urban multifamily development is complex. Cities offer labor availability, diversified demand, access to capital and economic stability, but they also impose higher costs, regulatory risk and operational complexity. Compared with rural development, which emphasizes simplicity, lower costs and fewer political hurdles, urban projects demand patience, experience and disciplined underwriting. For developers who understand these tradeoffs, urban multifamily can deliver durable, long-term value.
Brad Butler is a partner in the commercial finance practice group and co-chair of FBT Gibbons LLP’s multifamily housing industry sub-team.