Research

Did you know that at the same time many renters navigate a housing market with limited affordable options, new apartment development continues to be held back by World War II-era zoning restrictions? In many localities, regulations introduced in the mid-1940s have choked the multifamily pipeline for decades, creating a “missing middle” that leaves low-income renters in a lurch.

Increasingly, single-family rental (SFR) operators have been relying on build-to-rent (BTR) development to bridge the housing gap, accelerating the momentum of SFR construction through 2024’s halfway point. Both total SFR/BTR housing starts and BTR’s share of all single-family housing starts reached new record highs in the second quarter, setting the stage for another banner year.

The small multifamily outlook continues to brighten as more signs indicate a normalization has already begun. In the second quarter, originations activity and borrowing conditions improved as completions sat at a five-decade high, Arbor’s Small Multifamily Investment Trends Report Q3 2024, developed in partnership with Chandan Economics, shows. While the subsector’s fundamentals are trending up, it still has room for growth when interest rate relief arrives.

While the overall pace of new multifamily permitting per capita in the U.S. slowed recently, it has picked up momentum in pockets of the country, especially the Midwest. In the first two quarters of 2024, Madison, WI, Columbus, OH, and Omaha, NE, were among the major metropolitan markets posting solid permitting gains, another sign of multifamily’s strength in all cycles.

The U.S. multifamily market followed the quick pandemic contraction with a strong recovery, and has now normalized into a more stable cycle. Demand remained strong across the country, with a wide variety of markets among the leaders for rent growth.

After skyrocketing through a boom cycle over the past two years, the U.S. multifamily market settled into a cycle of stabilization in the first half of 2024. Rents held steady, occupancy increased, and vacancy rates remained in line with historical averages, while investor sentiment remained positive.

Single-family rental (SFR) CMBS issuance saw a sizeable pickup through the first half of 2024, with $4.2 billion in new issuance, placing it on pace to at least triple last year’s annual total.

With the macroeconomy maintaining its underlying strength and a handful of rate cuts expected by the Fed within the next 18 months, green shoots of optimism within the multifamily sector are multiplying. Even as high interest rates impede normal operations, stabilization is underway while the sector’s long-term prospects remain unwavering. In this deep dive, our research teams will explore the tailwinds underpinning the multifamily sector’s short- and long-term outlook.

After the volume of newly issued multifamily permits hit a 37-year high in 2022, multifamily completions surged another 22.3% last year. As the sector continues to gain strength, its growth has remained concentrated in the southern and western regions of the country, according to an analysis of new data from the U.S. Census Bureau’s Survey of Construction.

During the post-global financial crisis (GFC) cycle, a disproportionate share of new multifamily construction was of high-rise units in properties with amenities. However, the tides have turned. The rising cost of homeownership has brought the need for more affordable housing development in the U.S. to the top of many legislative agendas. In this deep dive, our research teams utilize data from the U.S. Census Bureau’s Annual Survey of Construction to show how and why the characteristics of new multifamily properties continue to evolve alongside shifting market needs.