Multifamily Starts Find a New Low

Last summer multifamily starts took a huge plunge as rate uncertainty kept developers on the sidelines. Now, rising construction costs in combination with increased rate uncertainty has sent U.S. Census Bureau’s measure of privately-owned multifamily starts to new lows. The 3-Month Moving Average (dotted teal line) is approaching the lows of 2020, when COVID lockdown literally brought building to a halt. The latest reading of 299,000 units is just 50,000 above the 2020 nadir of 249,000 units.

It will take months for the dearth of new supply to hit housing markets, but demand for rentals has stayed stubbornly high. According to data provider RealPage Market Analytics,

Absorption soared to over 103,800 units from just over 49,000 in the previous quarter, marking a stark contrast to the subdued behavior observed during the 2021-2023 period, which was influenced by the COVID-19 pandemic. Historically, the first quarter has not been the peak period for apartment demand, typically accounting for only 4% of annual absorption. However, the early months of 2024 have deviated from this trend, with demand doubling the decade's average and significantly outpacing the end of 2023

We believe these trends, combined with the affordability challenges faced by potential home buyers will continue to be a tailwind for Multifamily Housing REITs who should be able to maintain or even raise rental rates in markets with strong demand and declining supply.