Drop in Construction Starts

New multifamily housing starts have dropped about 40% year-over-year, with the second quarter of 2024 seeing the lowest number since early 2011. This slowdown, combined with strong absorption rates, suggests that the oversupply is gradually decreasing, leading to a more competitive market. Since construction typically takes 24 to 30 months, we can expect limited new supply in the near future, which should help support continued rent growth.

As the market tightens, developers may shift their focus to revitalizing older properties or enhancing existing ones, further improving the quality and desirability of rental options available to tenants. This shift could create a healthier balance between supply and demand, fostering long-term stability in the multifamily sector.

The Rent vs. Ownership Gap

Affordability is improving as the median rent-to-income ratio for market-rate apartments has decreased for 15 consecutive months. This trend indicates that rents are becoming more manageable compared to incomes. With wages rising faster than inflation, the outlook for affordability is positive, supporting ongoing demand for rental housing.

Traditionally, homeownership has been viewed as a marker of financial success. However, with average home prices soaring nearly 50% since February 2020 and mortgage rates more than doubling, owning a home has become increasingly out of reach for many. As a result, the financial advantages of renting—such as lower monthly payments and included amenities—are attracting more individuals.

Renting offers significant flexibility, particularly for younger generations who value mobility. Many renters appreciate the ease of relocating for job opportunities or lifestyle changes without the complications of selling a property. This adaptability is especially important in today’s dynamic job market, where remote and hybrid work arrangements are on the rise. Renters can explore various neighborhoods and adjust their living situations to meet changing needs, whether that involves downsizing, upsizing, or moving closer to work or family.

The gap between renting and owning is expected to persist for the foreseeable future. Despite projected strong rent growth, rising taxes, property insurance, and high home prices will keep renting as a viable and often more attractive option for many individuals and families, solidifying the trend toward a more rental-focused housing market.

Wilkinson’s View

Overall, the multifamily market is showing positive signs of stability, with strengthening occupancy rates, high renter demand, declining construction starts, improving affordability, and renewed investor confidence. These factors suggest the multifamily investment landscape may be on the verge of significant change. The team at Wilkinson is poised to capitalize on these trends, leveraging our expertise to identify and secure valuable opportunities in a shifting market. Our commitment to quality assets and strategic investment positions us as key players in navigating the evolving landscape.As the economy adjusts to these changes, the multifamily sector stands to benefit significantly. The combination of increased demand for rental units and the potential for favorable monetary policies creates an attractive environment for both investors and renters alike.At Wilkinson, our focus on innovative strategies and community-building initiatives will further enhance the appeal of our properties, fostering long-term growth and stability in the communities we invest in. With a clear vision and strong operational capabilities, we are well-positioned to thrive in this promising new chapter for multifamily real estate.