Multifamily Housing Trends

I’ve been asked a bunch lately about any signs of apartment demand slowing down. My answer: So far, it’s the opposite. Demand just keeps coming at levels that defy even the most bullish forecasts. RealPage just reported the best Q1 for net absorption (138k units!) in 25+ years, and while CoStar called it the second-best Q1 (128k units!) in 25+ years. Any quibbling over methodologies distracts from the undisputed fact that there’s a heckuva lot of well-qualified demand for U.S. apartments. Net absorption (move-ins minus move-outs) above 100k units is something you might see in the busier leasing seasons of Q2 or Q3, but rarely in a Q1. Demand came in hot all across the country. Especially in the supply-heavy Sun Belt, led by Texas. But also across much of the East Coast, West Coast and Midwest. That continues a hot streak, lifting the T-12 absorption numbers back up near 2021 levels (though there's a lot more available to absorb today than we had in 2021). I know what some of you are thinking: “It’s because no one is buying houses!” But that’s a gross oversimplification for a couple reasons. 1) Leasing activity has been much stronger for apartments than for single-family rentals, the more direct trade-off for home purchase. 2) While move-outs to home purchase are down and therefore renter retention up, that don’t explain the heavy volume of NET NEW renters coming in the front door. So what is driving all this demand for apartments? I think a few factors: 1) If you build it, they will come – and we’re building a lot of it. We’re at the tail end of the 50-year peak in new apartment supply. More supply is helping unlock pent-up demand. Renters are moving up market to fill new apartments, and through a multi-level filtering process, that’s opening up availability at the lower price points … bringing new renters into the market. 2) The share of young adults living with parents has been trending downward. And for many young adults leaving the nest, an apartment lease will be the first adventure in housing independence. 3) The jobs and wages story has been far brighter than headlines and sentiment reflect – at least through Q1… we’ll see what the rest of the year holds given the tariff fight. And... Wage growth has outpaced apartment rent growth for 27 consecutive months. That’s a needle mover. And it’s happening only because – unlike in 2021-22 – vacancy is elevated due to ultra-high supply hitting the market, putting downward pressure on rents. When wages outpace rents, the demand funnel expands. The tariff fight casts some big question marks on the demand outlook as the prime leasing season kicks in, but that’s a topic for another day. If apartment demand remains even moderately solid over the next six months as supply tapers off – and assuming no major disruption – that will play into the thesis of every apartment investor and developer in America … setting the stage for a potential rent rebound. More to come on that. Thoughts?

There's something potentially remarkable brewing in the U.S. apartment market right now, and it's all about demand. Data for 2nd quarter 2024 shows that renter appetite is not only strong, but arguably downright impressive. In the year-ending 2nd quarter 2024, nearly 400,000 market-rate apartment units were absorbed on net. How does that compare historically? Nearly off the charts strong. There are 98 quarterly readings on this chart dating back to 2000, and the year-ending 2Q24 figure is the 8th largest absorption figure on record. This is actually the third-largest figure on record (behind 3Q18 and 4Q00) if you remove the pandemic era peak (mid-2021 to mid-2022). But even including the once-in-a-lifetime pandemic era demand boom, the past 12 months' worth of demand ranks in the top 10th percentile dating back to 2000. This recent demand surge defies the prevailing thought that job growth is the be-all and end-all driver of housing demand. It's so much more than that, and one of the reasons why I'd argue it's vitally important to look at a holistic set of driving factors. Demographics, wage growth, pent-up demand, immigration, and consumer health among a myriad of unmentioned factors. This is one of the reasons why RealPage's market forecasts rely on a dozen-plus additional exogenous variables beyond job growth. Perhaps the BIGGEST thing that appears to be flying in the face of conventional wisdom though? Household formation. I'll tease this for a forthcoming post later this month, but get this: the mean # of residents per new lease agreement through May 2024 is the LOWEST figure since 2016. In other words, households aren't doubling up. If anything, the data might suggest that they're dissolving which means new household formation is happening outside of job growth-driven demand. (More on this idea later in July!) Assuming that 3Q24 is otherwise "normal" (meaning about 100k units will be absorbed) then that will push the trailing 12 month figure above 400,000 which was only recorded on one other occasion outside of the pandemic era.

Billions of Multifamily development projects aren’t getting off the ground: Why? The numbers don’t work. Period. Lenders won’t issue the financing for construction because today’s interest rates don’t allow for a refinance of the exit post-construction. Here is the math for a typical project I've seen: *Multifamily stick on podium (the 5 to 6 story stuff you see everywhere) costs roughly around $400,000 per 2 bed unit to develop (c. $300psf-$450psf) in the Northeast. *Rents typically range from $3000 to $4500 per month *Expenses are 30%-35% of rents *Therefore income is ~$25,000 unit/yr Income typically must cover debt financing costs by 1.2x so ~$20,000 can be used for interest payments = at 7% rates a developer is capped at borrowing about $300,000/unit towards construction, i.e. only 70% of the construction costs! That doesn’t include land. Nor the holding costs. Nor the developer's fees/cost. Nor the interest cost during construction. And certainly not the cost of capital to investors. Furthermore, the land has a value: the development profit has to be greater than the next best alternative use (parking, retail, an existing property… etc…). So how does a municipality make development work? Subsidies? That’s why affordable housing projects can still proceed.  Or higher rents: i.e. $5000+ rents for 2 beds. However, if municipalities are requiring 20% affordable housing it brings average rents back down to the $4,000 range, so again projects don’t pencil. The bigger issue is developers don’t want to start permitting projects they know don’t pencil. So, even if rates and construction costs fall, zoning and affordability requirements will mean developers won’t start the process for future projects as there is too much uncertainty. Post is in response to planning board member Chris Gittins' request to understand the financial considerations of multifamily/mixed-use developments (thank you). And Scott Bailey’s request to make it a post. I welcome any of the multifamily development pros to opine as well. And, none of this is investment advice, just my personal observations on the topic. Demetrios Salpoglou, Chris Fitzpatrick, John Burns, Jay Doherty, Jonathan Berk, Marc Savatsky, CRE Analyst, Keith Hughes, Scott Trench. #MultifamilyDevelopment #ConstructionFinancing #RealEstateInvestment

2024 revealed a crucial truth about multifamily: we're letting our technology outpace our people. But there's good news - we have a real opportunity to fix this. Through hundreds of property shops and comprehensive research, I've witnessed firsthand how we can better leverage automation to empower our teams and assist our customers Here's what I've seen: • Companies relying too heavily on 'set it and forget it' PropTech (which, by the way, is never truly 'set and forget'). We can enhance responsiveness by blending this tech with more human interaction. • AI responses missing the mark on basic inquiries. With some fine-tuning, we should be able to make these more accurate and context-aware. • Websites forcing tour scheduling when prospects just want quick info. Why not offer flexible options that cater to different preferences? • Onsite teams overwhelmed with tech support questions from residents. We can make our portals more user-friendly and provide better adoption support. My research with Swift Bunny confirmed what onsite teams have been telling us - they're drowning in PropTech while basic customer service suffers. But here's the kicker: the technology isn't the problem. It's our implementation and training that need a boost. Let's work to create the balance between innovative tech and that irreplaceable human touch in multifamily. It's time to elevate our game.

The latest data shows home prices in nearly every U.S. state are rising faster than real GDP (2.4%) and inflation (2.9%), with top growth in Connecticut, New Jersey, and Wyoming (8.3%). This divergence suggests that price appreciation is being driven more by supply constraints and capital flows than by underlying economic productivity. 🔍 Implications for Multifamily Investors & Developers: For-Rent Demand Will Stay Elevated: As for-sale housing becomes increasingly unaffordable, especially in states with double-digit appreciation, the demand for rental housing will remain strong. Rent growth potential increases in these markets, especially in high-barrier states in the Northeast. Watch for Supply-Constrained Markets: Wyoming’s appearance in the top 5—outside the typical coastal hotspots—signals that even tertiary markets can outperform when supply is tight. These are often overlooked but offer compelling cap rate compression and yield upside. Caution in Overheated States: Rapid price growth without wage or population growth (e.g. parts of the Northeast) may pose future correction risks. Investors should analyze long-term fundamentals like job migration, construction pipeline, and renter income growth. Combine this price data with rental vacancy rates and new construction permits to find where multifamily supply-demand imbalances are most acute. Now’s the time to double down on data-driven location selection. The next boom market may not be a major metro—but a supply-constrained secondary city. *The image is from Visual Capialist #LocationAnalytics #HousingPrices #Affordability #MarketStadium

Fraud is emerging as one of the biggest challenges in multifamily real estate. But it's symptomatic of a bigger cultural problem in the US today: declining social trust. Nearly 80% of owners reported a surge in fraudulent applications this year alone. From fake pay stubs to manipulated identities, the cost of these incidents adds up, with eviction-related losses often hitting $25,000 per case. According to the National Multifamily Housing Council, owners experiencing fraud reported a 40%+ year-over-year increase. As social trust declines across the U.S., behaviors that exploit tenant protection policies, lax law enforcement, and stretched court systems have flourished. This trend is not just a real estate problem; it mirrors a larger societal shift impacting public spaces, retail environments, and community standards. Just as stores lock basic goods behind glass and public spaces remove benches, multifamily operators are forced to adopt defensive stances to protect their assets. One natural result of declining social trust is privatization. While this takes many forms, it's not hard to imagine the emergence of "private renter networks" embraced by owners tired of the fraud arms race. Proptech company Get 100, led by Caren Maio, is pioneering this concept with a new “verified renter network”. Partnering with CLEAR, they aim to create a pre-vetted pool of renters, providing a reliable option for property owners weary of fraud. Imagine a private, trusted network where approved renters can skip repetitive checks—a solution similar to TSA Pre-check but designed for real estate. Will 100’s strategy shift the industry? In a low-trust environment, the appeal of secure, vetted communities is compelling. With multifamily construction slowing and renter demand tightening, the timing may be just right. Curious to know how this plays out and the broader impact of declining social trust on multifamily housing? Dive into the full article (linked in comments) to explore the future of rental fraud, why social trust matters, and how proptech is reshaping property management.

Most investors focus on buying right... But they're missing where the real money is made. After analyzing hundreds of multifamily deals, I discovered something shocking: For every $1 saved in operations, you create $16.67 in property value at a 6% cap rate. Let that sink in for a moment. Here's what this means in real terms: A 100-unit property implements better maintenance. They save just $100 per unit annually. That's $10,000 in total savings. The result? $166,667 in instant equity creation. But here's where it gets fascinating... Modern technology is transforming property operations: AI leasing assistants that never sleep Smart maintenance systems that predict issues Utility optimization tools that cut costs Data analytics platforms that spot trends The real magic happens in the resident experience: Community events that build loyalty Responsive communication systems Premium amenities that justify higher rents Package solutions that residents love Three game-changing strategies I've seen work: 1. Expense Control Vendor contract optimization Energy efficiency upgrades Staff cross-training 2. Revenue Enhancement Strategic amenity upgrades Ancillary income opportunities Resident retention programs 3. Capital Improvement Data-driven renovations ROI-focused upgrades Bulk purchasing power Here's the truth most investors miss: You're not just buying a property. You're buying an operating business. Remember this fundamental truth: A mediocre property with excellent operations will always outperform an excellent property with mediocre operations. PS: Reply with your top property management pain point - I'd love to share some practical solutions.

Cameras are far from a new technology for the real estate industry, but computer vision technology could dramatically increase their value for owners and operators. Computer vision technology means computers can understand visual data from photos or videos. Security is an obvious se case, but this technology allows cameras to be used for much more than that... Property inspection is another use case we see at Fifth Wall. As computer vision technology continues to improve, it will be used for property inspection and predictive maintenance, reducing the cost of manual inspections -- especially amid increasingly strict building codes and regulations requiring more frequent and thorough inspections. If owners and operators can save money via less labor needed for inspections and more centralized/remote monitoring of property conditions, the technology will take off. Near-immediate ROI is the not-so-secret secret of real estate technology's success. Need to have, not nice to have. #realestate #proptech

About a year ago I posted my takeaways from the forthcoming changes in the banking industry and their potential impact (comment below for a copy to the post).   CRE Daily recently posted similar observations and further discussed how: "Basel III Endgame, set to phase in starting July 2025, raises reserve requirements for large banks, pushing them to reduce direct lending to CRE. Private equity firms are stepping in as alternative lenders, with debt funds’ lending activity increasing 70% YOY as of Q324. This shift reflects a broader CRE financing restructuring, with banks indirectly providing funds through private equity, reshaping the lending landscape." Below are a few more headlines where private credit shops actually walked the talk:   Canyon Partners Raises $1.2 Billion for its Real Estate Debt Strategy CRED III represents Canyon's largest US real estate debt Fund to date, nearly doubling its $650 million predecessor fund.   Ares Closes Largest Private Credit Fund The $34 billion Ares Senior Direct Lending Fund III aims to lend to middle market companies.   BlackRock targets private credit growth with $12 billion HPS acquisition   Why does this matter? This shift may redefine how risk is managed and who controls the flow of capital in the market. For real estate investors it also means likely higher pricing and in some cases less flexibility in loan doc negotiation in exchange for availability of credit, higher leverage, and certainty of close, particularly for non-stabilized assets (which in the multifamily space are typically financed by the Agencies - Fannie and Freddie). ➡ Does the trend surprise you? How are you navigating through the credit availability/pricing risk in the current environment. Share in the comments below.