RubinBrown Apartment Stats 2024

EXECUTIVE SUMMARY

High supply, high interest rates, and slowing rental growth have defined the multifamily landscape during 2023 and the first part of 2024. Although demand remains strong, an abundance of new supply not seen in decades has kept rent growth low. Assuming the economy avoids a recession, demand should remain high enough to keep rent growth positive despite the high supply. The unaffordability crisis prevails as pandemic-era protections for renters expire and environmental hazards threaten existing rental housing and drive up costs for owners to insure and repair their properties. This executive summary will encompass the different elements pressuring the current multifamily real estate market, while incorporating insights from FreddieMac’s Midyear Outlook and Harvard University’s Joint Center for Housing Studies (JCHS). Record Supply Outpaces Demand Despite strong demand in the fourth quarter of 2023 and the first quarter of 2024, some multifamily rental housing markets are seeing rent growth slow down and occupancy decrease due to supply reaching its highest level in over forty years. A few markets could see new inventory at more than double the national rate. Due to rising construction and startup costs, more of these new units are high-end housing, rather than affordable options, accentuating the need for more affordable construction methods and government subsidies to encourage the development of new affordable housing. Zoning laws also play a role, with the JCHS reporting that an estimated 75% of land in major cities is restricted to single-family homes. Rent Growth Declines & Vacancies Increase While rent growth is expected to remain positive, growth rates are predicted to fall below average due to the high supply. RealPage reports that rent growth has not exceeded 0.3% since August 2023. Apart from 13 markets, most of the nation has seen rent growth slow. FreddieMac forecasts a lower-than-average rent growth of 2.7% for 2024. Multifamily operators face the choice of trading higher vacancies for higher rents, although rent cuts have occurred in the highest-supply markets, according to RealPage.

FreddieMac’s Midyear Outlook projects a 6% vacancy rate nationwide for 2024, which assumes an economic soft landing. In the event that a recession occurs, vacancies would see increases, while rents would be pressured downward. Unaffordability Concerns Pressure Governments The JCHS reports that the number of renters living in housing that they cannot afford has reached a record high. Unaffordable housing, which exists when a household spends more than 30% of their income on housing costs, affected 22.4 million renter households when last measured by the US Census Bureau in 2022. Among these households, 12.1 million saw housing costs exceed 50% of their income. investors and eliminate barriers to development, the affordable housing crisis is unlikely to be alleviated. Climate Change Threatens Existing Housing As climate-related hazards become more common and severe, costs to insure, repair, and rebuild property in affected areas rise, requiring pre-disaster mitigation strategies, as well as climate adaptation strategies, per the JCHS. The Center reports that 41% of the nation’s occupied rental stock is under threat, with California and Florida leading the way at 77% and 89%, respectively, of each state’s rental stock at risk. Furthermore, while emissions and high energy costs can be mitigated through investment in efficient energy, incentives from governments are likely needed to aid the cost of modifying existing properties. Such investment would help combat a changing climate while easing energy costs for the increasingly financially burdened renter base. Conclusion While the housing market cools as a result of increasing supply and interest rates, the necessity for affordable housing prevails as more Americans than ever are facing financial stress. More frequent and dangerous climate related events increase costs for both owners and tenants. Pressure mounts for governments to provide additional initiatives to attract investors to affordable housing and efficient energy upgrades, as well as for disaster mitigation and assistance with rising insurance costs in at-risk areas. This data reflects the critical shortage of affordable units. Without action from all levels of government to incentivize

Executive Summary

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