There Will Be No Multifamily Supply Crunch

Higher rates were expected to crush new multifamily supply. That's not happening and isn't on the horizon.

Multifamily developers have been cranky for the better part of a year. With interest rates rising dramatically over the past 18 months—and construction costs and land prices holding steady—fewer projects make financial sense. At the same time, slowing rent growth has put many owners—and their rosy financial projections—under pressure.

Together, these factors have convinced many owners that a big supply crunch is on the horizon. Perhaps by the end of 2024, but if not then by 2025 or 2026, the combination of higher rates, tight lending, and construction costs will lead to new multifamily deliveries falling off a cliff. So—the argument goes—while rents may be sluggish in 2024, they will surely begin growing again in the not-too-distant future.

But the data has yet to bear this out. And with many experts now believing that the Fed is done with rate hikes for this cycle—and may begin cutting them next year—the supply crunch is running out of time to materialize.

Today’s letter will dive into the latest data and what it tells us about multifamily deliveries over the next 36 months.