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The wave couldn’t climb forever. In 2023, the multifamily housing market crested after two years of astonishing rent growth, reaching rates as high as 11 percent to 12 percent.

Though low unemployment and high interest rates could have lifted the market further, construction deliveries mitigated the wave. Though certainly not crashing, the multifamily housing market will ride a smaller rent-growth wave in 2024.

We’re budgeting for 3 percent growth in 2024, perhaps slightly higher than some U.S. analysts expect. Freddie Mac, for instance, projects 2024 nationwide rent growth at 2.5 percent, while Real Page estimates growth between 1 percent and 2 percent.

CBRE anticipates rent growth to slow to 1.2 percent. Analysts overwhelmingly cite supply for slowing growth. New construction began curtailing rent growth in late 2023, which will continue in 2024. Inventory will be the key driver this year.

Multifamily housing might notice short-term instability this year, particularly in certain markets, but judicious budgeting will temper the turbulence. Some might find opportunities for smart acquisitions in 2024. Here’s how we view rent growth for multifamily housing in 2024 and how to make the market work for you.

New supply outpacing demand 

In 2023, new multifamily deliveries reached 565,000 units, a level unseen since the mid-1980s, according to Apartments.com. While absorption rates remained impressively high, rising 122 percent over 2022 according to the Apartments.com data, the growth surge impacted rent growth and occupancy rates. Rent growth cooled in the fourth quarter of 2023, while occupancy settled at about 95 percent.

According to Jay Lybik, CoStar’s National Director of Multifamily Analytics, fewer unit completions “may offer some reprieve for the multifamily market” in 2024. Still, supply remains the strongest headwind affecting rent growth.

Many analysts, including those at RealPage, project the construction supply line at about 1 million units, signaling demand pressure for at least two years. Estimates for 2024 openings vary: RealPage anticipates more than 600,000, while CBRE expects 440,000.

Even if other economic forces (relatively low unemployment, incremental wage growth, sluggishness in housing starts) continue, demand can’t keep pace with the supply surge. There’s simply too much new inventory to strengthen demand. As a result, we feel 3 percent rent growth is a sustainable projection.

The home shortage impacts 

Despite the surfeit of new multifamily supply, rent growth hasn’t gone negative because home construction continues to lag. U.S. Census figures show that new starts and permits haven’t recaptured their climb through the 2020-21 period. Housing starts in 2023 were down 9 percent from 2022.

Some economists anticipate housing sales beginning to trend higher in 2024 if the Federal Reserve cuts rates as it indicated in late 2023. The National Association of Realtors sees “pent-up demand,” particularly in certain submarkets in Texas and the mid-Atlantic region. Indeed, as renters become buyers, rent growth recedes. However, we want to watch the renters’ reactions to more housing supply.

Many renters live with a “stigma” that they consider unwarranted. A fascinating RealPage study conducted by the Center for Generational Kinetics found that 69 percent of renters feel “misunderstood,” 66 percent are happy renting, and 63 percent disagree that they rent because they can’t afford to buy. The home shortage and generational shifts regarding the American Dream of homeownership could have profound, long-term impacts on multifamily housing.

Where rent growth will be strongest

Nashville, Tennessee, has been a high-performing metropolitan area for several years, and we expect that to continue. According to the U.S. Bureau of Labor Statistics, the region demonstrated 4.2 percent job growth from June 2022 to June 2023 and retains its star status in multifamily housing. Other cities we’re watching are Charlotte, North Carolina; Austin, Texas; and Jacksonville, Florida.  

Regarding rent growth, RealPage forecasted the top-performing cities for 2024. The list features some expected names, like the San Jose tech center and the desirable retirement region of West Palm Beach, but also includes a few notables.

Richmond, Virginia, is bringing in new jobs and residents, while Pittsburgh’s Urban Redevelopment Authority is leading an initiative to repurpose vacant office spaces into multifamily inventory, including affordable housing options.

Other submarkets, especially those Sun Belt areas seeing high development, could find challenging 2024 conditions in terms of rent growth and occupancy. Willing investors, however, might see an opportunity.

Finding multifamily buying opportunities

The past year has generally been unfriendly to buyers, though investors with some powder ready and a long-term lens can find opportunities.

“Softer fundamentals and higher borrowing costs have negatively affected property values and created significant buying opportunities for investors,” CBRE noted. CBRE recommended Northeast and Midwest properties, which populate higher rent-growth regions, as inventory to consider.

Further, investors would be wise to target mispriced or mismanaged properties, where existing rents sit substantially below market value. When units open, the replacement lease could command an increase higher than 3 percent. We value these acquisitions, in which rents can be priced higher than the standard 3 percent growth. 

We’ve long been bullish on multifamily housing as a long-term investment since it balances so many economic forces with relative dexterity. As always, people need places to live.

Yet renters also require property managers to remain current on market and cultural trends. Otherwise, managers risk swinging too fast between raising rents and refilling units. Therefore, even modest periods of rent growth, which we’re likely to experience in 2024, can be positive for the sector’s long term.

Multifamily investors should remember that. Yes, many thrived during the go-go years of the early 2020s. However, they also can thrive during periods of more moderate growth by understanding their renters, markets and properties.

Six months or a year of slower rent growth represents just a moment in a property’s life cycle. Investors who understand and prepare for that will be successful.

Michael H. Zaransky is the founder and managing principal of MZ Capital Partners in Northbrook, Illinois. Founded in 2005, the company deals in multifamily properties.

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