The small multifamily subsector, strengthened by sound structural fundamentals, is well-positioned to face distress due to interest-rate pressure. Even though pricing has slid lower and cap rates have risen, it should remain resilient in the coming quarters. A deep dive into a uniquely positioned subsector, Arbor’s Small Multifamily Investment Trends Report Q1 2023, developed in partnership with Chandan Economics, analyzes the competing headwinds and tailwinds influencing investment performance.

The U.S. multifamily market continued to show signs of slowing during the first quarter of 2023. Rent growth was down from the skyrocketing pace seen in 2021 and 2022, although demand remained strong and vacancy held near historic lows.

Even as home prices posted their first annual decline in over a decade in March, affordability remains an urgent economic and policy challenge. Today, no states currently have an adequate amount of affordable and available homes for their lowest-income renters. With public support for improving housing affordability growing stronger, state and local governments have been prioritizing policy solutions to close the nationwide housing gap.

Single-family rentals’ role in the U.S. housing ecosystem is malleable. In different markets, this product type serves different purposes — acting as a magnet for transient lifestyle households in some metros, while providing families with affordable access to quality public school districts in others. As a result, SFR retention rates vary dramatically across the country, depending not only on the cost of homeownership but on the purpose that single-family rentals serve in that market, creating a unique group of top markets.

Over the last few years, the list of top rent growth markets was dominated by the more affordable Sun Belt markets. However, over the last several months, a more diverse selection of markets has comprised the list.

Even with concerted public and private initiatives, the affordable housing shortage has persisted in cities and communities across the U.S. Arbor’s Affordable Housing Trends Report Spring 2023, developed in partnership with Chandan Economics, analyzes the challenges and assesses the outlook of a sector that has gained more investor attention amid growing economic headwinds.