Looking into the future is a necessary part of leading any business, absorbing market data and using it to predict future directionality is vital. At Life Bridge Capital we pay close attention to several market forces including the supply & demand of housing units, long-term interest rate trends, and regional economic growth trajectories to inform our investment thesis. Today we are focusing on recent supply & demand dynamics and how that will likely impact multifamily in the near term.
A major theme of the past 18 months has been the growth boom across the country, nearly 440,000 units were delivered nationwide which is the highest figure since the 1980’s. The development wave will crest in 2024 with another 670,000 units coming online. One interesting point is that nearly 25% of all construction in 2024 is concentrated in the top ten markets. The below chart shows the growth in inventory over the last 5 years.
However, these record construction figures and the resultant impact on occupancy has been ameliorated by the growing affordability gap between renting and purchasing, the below graphic from Marcus & Millichap breaks down the affordability gap by market and region. Areas with the largest gaps, primarily the SE and Western regions, have seen the bulk of construction while the Midwest is delivering fewer units than the historical average.
As a result, the Midwest and North East have led the nation in rent growth in 2023 with cities like Madison, Kansas City, and Lincoln leading the way. The nationwide occupancy rate finished just a couple of basis points under the 20 year rolling average at 94.1%, down from the peak of 97% in 2021 but well above the lows of the last cycle.
The economic law of supply and demand remains undefeated, this chart shows the impact of supply growth on rental rates. Turns out the best way to solve a housing crisis is to, wait for it, build more housing! Who would’ve thunk?!
