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Another fantastic researched article by Jay Parsons via LinkedIn

Jay Parsons • Rental Housing Economist (Apartments, SFR), Speaker and Author

The New York Times warns apartments could be in trouble, in part due to “waning demand in some once booming Sun Belt cities.” But is that true? Well, it’s true that apartments face a number of headwinds right now (high rates, peak supply, elevated expenses). BUT demand is not the issue.

In fact, demand is a tailwind. Here’s why:

1) U.S. apartments likely added around 265k net new renter households in the first half of 2024, based on preliminary estimates. If that sticks, it would put 2024 behind only 2021 for the hottest first halves in recent decades.

No serious investor or analyst expected to sustain 2021’s record pace for demand, and it’s an unfair benchmark.

To claim apartment demand today is weak because it’s less than 2021 is akin to arguing Shaquille O’Neal is short (at 7’1″) because Yao Ming (7’6″) is taller. It’s just silly.

2) Demand may *appear* small only when stacked up against the largest supply wave in nearly 50 years. But a more accurate analysis would be something like “demand is higher than normal, yet supply is wayyyy higher than normal.”

This is an important distinction, particularly given the massive decline in recent starts pointing to much less supply by 2H’25 and into 2026-27.

3) The NYT’s Sun Belt dig is particularly curious, as multifamily Sun Belt critics are somewhat of a dying breed these days (other than some Wall Street’s REIT analysts).

The Sun Belt continues to gobble the vast majority of the net new apartment demand, even while it wrestles with outsized supply.

More than two-thirds of all net new apartment demand over the prior year went into the Sun Belt or Mountain markets.

Of the top 10 markets for net demand, eight are located in the Sun Belt.

Of the top 10 metro areas for population growth last year, all 10 are located in the Sun Belt.

No, it’s not the all-time-high blistering pace of 2021 anymore, but again: That’s not a realistic benchmark. We’re still seeing strong growth by any reasonable benchmark. Furthermore, demand today is stronger than it was in 2022-23, so you can’t really say it’s “waning” anymore.

4) None of this to argue that U.S. apartments (in the Sun Belt or elsewhere) won’t see more struggles. Because some will. When interest rates shot up, multifamily (and nearly every other type of real estate) faced value erosion — and we haven’t yet seen the full impact from it. On top of that, peak supply (hitting here in 2024) means rents are flat to falling across most of the U.S. There’s a remarkably strong correlation in this cycle between where supply is going and where rents are softening.

So it’s totally fair to debate the severity and consequence of higher rates + peak supply. Those are real headwinds.

But right now, demand is a tailwind — not a headwind.

#multifamily #CRE #apartments

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