In the face of higher interest rates and short-term supply challenges, the multifamily market stands resilient, driven by a confluence of factors that promise long-term sustainability. The intersection of an overall shortage of housing, an expensive for-sale housing market, and the burgeoning influx of the next generation of renters entering prime rental age has created a robust foundation for gains in the multifamily sector.
While acknowledging the current short-term supply headwinds, industry experts remain optimistic about the multifamily market's ability to weather these challenges. Factors such as construction delays, material shortages, and regulatory hurdles have posed obstacles, but the underlying demand for rental housing continues to fuel the sector's momentum. Freddie Mac predicts job, wage and gross domestic product growth will remain slow but positive, while inflation continues a downward trajectory. Likewise, rent growth is expected to remain positive. (Freddie Mac Multifamily, 2023)
The overarching shortage of housing in many regions plays a pivotal role in supporting the multifamily market. As cities grapple with population growth, urbanization, and changing demographic trends, the need for accessible and affordable housing becomes increasingly evident. Multifamily properties address this demand by offering a diverse range of housing options, accommodating various lifestyles and preferences. "The mix of high mortgage rates, tight home inventories and other factors will mean potential home buyers will confront headwinds affording a home purchase. So, with multifamily residents staying put for longer, rents will remain elevated," said Mary Le, an economist at Moody's Analytics. (Steele, 2024)
The persistent high costs associated with the for-sale housing market have become a driving force behind the multifamily sector's sustained growth. Escalating home prices, coupled with stringent mortgage requirements, have pushed many potential homeowners towards the rental market. According to the National Apartment Association, median prices for an existing home were up 2.8% year-over-year, as of October 2023. (Munger, 2023) Bernadette Joy of Forbes Magazine urges people grappling with debt — particularly Millennials saddled with student loans — to postpone purchasing a home until they have paid off their debt. (Joy, 2023) Multifamily properties, with their flexibility and often more affordable options, emerge as an attractive choice for those seeking housing solutions in the face of a challenging buying landscape.
The impending influx of the next generation of renters, comprising Millennials and Gen Z, entering their prime renting age further fortifies the multifamily market. These demographics, characterized by a preference for flexibility, urban living, and an inclination towards experiences over possessions, are poised to drive the demand for rental housing. Jeffrey Steele of Multi-Housing News sees younger generations seeking wellness amenities like on-site fitness centers, and community engagement like catered mixers. (Steele, 2024) Developers and property managers are adapting to cater to the evolving needs and preferences of this demographic, ensuring the sustained relevance of multifamily properties in the market.
Despite facing short-term challenges, the multifamily market remains resilient, underpinned by a combination of factors that contribute to its long-term viability. The overall shortage of housing, an expensive for-sale housing market, and the emergence of the next generation of renters collectively shape a landscape where multifamily properties play a pivotal role in meeting the evolving demands of the housing market. As the industry navigates the current supply headwinds, the multifamily market appears poised for continued growth and adaptability, ensuring its significance in the broader real estate landscape.
Freddie Mac Multifamily. (2023, December 19). 2024 Multifamily Outlook.
Joy, B. (2023, June 15). With A Potential Recession, Should You Buiy A Home Now or Wait? Retrieved from Forbes: https://www.forbes.com/sites/bernadettejoy/2023/06/15/with-a-potential-recession-should-you-buy-a-home-now-or-wait/?sh=62c406255946
Munger, P. (2023, December 4). Retrieved from National Apartment Association Web site: https://www.naahq.org/2024-apartment-housing-outlook
Steele, J. (2024, January 4). Top 12 Multifamily Predictions for 2024. Retrieved from Multi-Housing News Web site: https://www.multihousingnews.com/top-12-multifamily-predictions-for-2024/