Rising Demand for Multifamily Housing Creates An Opportunity for Developers to Invest

The apartment demand continues to rise across the country, and the industry must keep up to provide enough multifamily housing to meet current and future housing needs.

Through research conducted by Hoyt Advisory Services and Eigen10 Advisors, LLC, commissioned by NMHC and NAA, it has been determined that 266,000 new apartments are needed annually to meet the multifamily housing demand. For Connecticut alone, 498 new apartments will be necessary each year. Presently, approximately 352,000 apartment residents live in Connecticut and about 219,000 apartment homes, with 60% of the existing apartments being built before 1980. So not only are new apartments needed to be built, but current apartments in Connecticut also require renovations and repairs.

This overall demand in multifamily housing can be attributed to the rising mortgage rates in 2022, which have made renting less costly than buying a home. Mortgage rates closed out 2022 at 6.42%, and while they have been fluctuating since the start of 2023, the current mortgage rates are still more than double the all-time low of 2.65% seen back in January 2021.

Inflation is also a contributing factor to the multifamily housing demand. This also continued to rise through the end of 2022, with shelter as one of the most significant inflation contributors. According to Redfin, the median monthly asking rent for the U.S. surpassed $2,000 for the first time in May of 2022. Moreover, asking rents have increased more than twice the annual average rate of 2.5% over the past decade. So, for those looking to enter the multifamily housing industry, rental market conditions are desirable.

Furthermore, special funding and incentives are being offered to developers to help stimulate the construction of multifamily housing. Freddie Mac and Fannie Mae are just a few institutions trying to pique interest in the multifamily market. These organizations have altered some of their programs to make it easier for developers to gain financing for market-rate multifamily housing. By 2024, Freddie Mac hopes to fund the construction of 30,000 new multifamily units.

As multifamily housing remains the most sought-out property type, the incentives available may make it the ideal time for developers to invest. The Q4 2022 Multifamily Real Estate Market Report from HoneyBricks has even noted that while the macro economy remains uncertain, multifamily rents continue to outperform in many markets. 

Contact your Whittlesey Advisor for more information on how to take advantage of the rising demand for multifamily housing.

Author:

Emily Kindle
Assurance Supervisor