2024’s Multifamily Forecast & Why

Rents have moderated over the past three years as a result of the multifamily sector experiencing a construction boom not seen since the 1970s.

But things might be about to change.

In a recent research, Greg Willett of Institutional Property Advisors predicted that rent growth will return by the spring of 2024 and reach “robust” levels by 2025.

Early multifamily construction started to slow down in 2Q 2023, with starts in important markets declining marginally. According to Willett, this was primarily due to decreased availability to development money. Following the failure of regional institutions earlier in the year, the biggest banks were reluctant to provide money for real estate, while smaller banks were also reluctant. Along with the low rate of rent growth, capital sources were concerned about rising operating costs, particularly insurance rates that “soared above past norms.”

Despite the fact that more than a million apartment buildings are now being built in the United States, the housing shortage in the country may not be much reduced. Only 15 markets have a building pipeline that is about half full, with 30,800 units being developed there. Willett stated that the start volume was down 52% from the quarterly norm of 64,200, which was maintained for nine quarters beginning in early 2021 and ending in early 2023. “From April through June 2022, absolute peak quarterly starts totaled 81,500 units.”

By spring 2024, he said, “the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary,” causing rents to rise throughout 2025.

Texas shows the clearest indications of a slowdown in apartment development. Even though these metros continue to lead the nation in terms of job growth and apartment demand, starts dropped by 79% in Houston, 74% in Austin, and 64% in Dallas-Fort Worth compared to the previous two years. Rents are consequently expected to increase for them.

Philadelphia, Denver, and Washington, DC, all of which have had dramatically decreased multifamily development starts, are further candidates. Nashville, Phoenix, Miami, Orlando, and Charlotte are all experiencing more gradual drops. Phoenix, Raleigh-Durham, Charlotte, and Dallas-Fort Worth were all at the top of the list for multifamily starts in the second quarter, each with 3,200 to 3,500 units being built, despite the construction slowdowns.