Multifamily Trends

05 / 12 / 23

3 min read

The U.S. multifamily sector faces complex challenges as the pandemic fades to a memory and a recession continues to loom for the U.S. economy later this year. Yardi Matrix vice president Jeff Adler dove deep into the market outlook and tough realities for operators during Thursday’s webinar. A full recording and presentation slides are available online.

Current trendlines Matrix analysts have observed include:

Multifamily fundamentals are generally strong, but continue to decelerate year-over-year
A seasonal uptick in rents is ongoing and was reflected in reported data from March and April
There is ongoing demand for renter-by-necessity communities, which have little new supply coming online
Hybrid work has tilted household budgets towards housing expenses, rather than transportation
A supply shortage in the U.S. housing market is likely to be ongoing for the next 5-10 years
Inflation and interest rates continue to hamper transaction activity and will continue to do so for the near term

The average U.S. asking rent rose $5 in April to $1,709, while year-over-year growth decelerated to 3.2 percent, down 80 basis points from March. (Gain more insights by downloading April’s Multifamily Report.)

“Fundamentals have been pretty good, and we expected the deceleration (in rent growth). But there is a seasonal uptick happening – we did see that in April,” Adler said. “Affordability is still a key concern, and the political will to truly resolve the issue does not seem to be in evidence.”

Consistent job growth and household formation over the last two years have continued to drive renter demand, despite lease renewal rates generally returning to pre-pandemic levels. In some cases, renters are seeking creative alternatives to hard-to-find housing, such as co-living situations, using short term rentals as permanent homes, or even subletting vacation rentals. But these aren’t long-term solutions, and ultimately new housing development will have to be the answer.

“It’s important to note the historic increase in rents that occurred in 2021. There was a need for wages to catch up .. But when we look at the cost of housing to buy, it is still way more expensive compared to renting. Renting is still a viable and preferable economical alternative, including single family rentals and built-to-rent homes,” Adler said.

In conjunction with a slowdown in construction financing due to banking sector instability, the upshot is that the supply shortage for multifamily housing will be exacerbated, potentially lasting up to a decade unless government bodies change their tune. If you’re looking for investment windows despite those challenges, be sure to review the webinar recording, which offers insight into target opportunity areas.

AUTHOR

Leah Etling is the founding editor of the Balance Sheet and a 12-year Yardi employee who also oversees press releases and social media. An award winning journalist, she holds a master's degree from UC Berkeley and is a native of Santa Barbara County, Yardi's home.