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This research and article comes from Jay Parsons, Rental Housing Economist (Apartments, SFR), Speaker and Author. <— Click on link to see other articles and research from Jay.

So far here in 2024, U.S. multifamily completions are outpacing new starts at the widest levels since 1975. And that gap is likely to further widen. Ironically: Cheap debt helped fuel the multifamily construction boom, which in turn tamed rental inflation; and expensive debt is helping tame the multifamily construction boom, which could fuel renewed rent inflation.

Through the first four months of 2024, multifamily completions are at multi-decade highs while starts continue to rapidly plunge due to several headwinds: high rates, flat-to-falling rents for lease-ups (depending on the market), and construction costs often coming in above replacement value.

Simply put: It’s very difficult to start new unsubsidized apartment projects right now.

In the short term, supply will likely continue to exceed demand in 2024 — keeping vacancy elevated and putting downward pressure on rents.

In the mid and longer term, you can see how (assuming the job market stays healthy) demand could exceed supply again — perhaps even by next year in some markets, which would in turn put upward pressure on rents (though unlikely to the sky-high growth levels of 2021-22).

It’s difficult to see a scenario where multifamily starts could meaningfully accelerate prior to 2H’25 and more likely in 2026. Even if the Fed trimmed rates a bit, equity and debt players will want to see the current wave of lease-ups stabilize and rent growth return even at moderate levels. Plus, we’ll likely also need to see stabilized asset values rebound enough to bring back the discount to build versus buy (at scale).

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