Single-Family Rental Investment Trends Report Q3 2023

Single-Family Rental Investment Trends Report Q3 2023

SFR Construction Starts Hit Another High as Cap Rates Continue Rising

Key Findings

  • SFR/BTR construction starts reached a new record high in the first quarter of 2023, accounting for 7.3% of all single-family starts.
  • Rent growth increased slightly, resuming pre-pandemic seasonal patterns.
  • Cap rates reached 6.2% in the second quarter, an increase of 16 bps over the previous quarter.

State of the Market

Amid a challenging interest rate climate, the single-family rental (SFR) sector has been garnering the attention of the multifamily investment community, with a strong set of tailwinds and wide availability of attractive opportunities.

While SFR acquisitions decreased in the first half of 2023, buying activity in this sector has been less negatively impacted than owner-occupant purchases. The current slowdown, which has extended to institutional investors, reflects a need for increased property yields among buyers and a lack of distress in the market to motivate sellers. SFR construction continues to be a bright spot. With mortgage costs soaring and underwriting standards for first-time home buyers near their tightest levels since the 2008 financial crisis, priced-out would-be homeowners are now choosing to live in build-to-rent (BTR) communities. As demand for SFR units has grown, the market share of new BTR construction reached record highs last year and could continue setting new milestones throughout 2023.

Performance Metrics

CMBS Issuance

In the CMBS market, SFR issuance activity continued to slow. According to Finsight, SFR CMBS issuance totaled $416 million in the first quarter of 2023 — the lowest quarterly amount since 2017 (Chart 1). SFR CMBS issuance has now declined in each of the past four quarters. This pullback is consistent with what has been occurring throughout commercial real estate. Overall, total CMBS deal volume finished the second quarter of 2023, down 55% from one year ago.

Originations by Purpose

New acquisition loans have become a predominant purpose type for SFR originations. Loans intended for purchasing, not refinancing, accounted for the majority (59.0%) of originations to single-family investors in 2022 for the first time since 2018, according to Fannie Mae (Chart 2). Moreover, purchases accounted for the largest share of investor originations since 2000. Through the first quarter of 2023, the shift toward purchases has accelerated, with acquisitions accounting for 75.3% of tracked originations — the highest share on record dating back to 1999.

The financial markets shifted in 2022 after the Federal Reserve began its monetary tightening cycle. In the 17 months ending in July 2023, the central bank raised interest rates 11 times, bringing its federal funds target rate from 0.25% to 5.50%. As a result, voluntary refinancings of existing mortgages became much less attractive.

According to a Chandan Economics analysis of Fannie Mae data, the dollar volume of rate-and-term refinancings fell by 89.1% during the 12 months ending in March 2023 compared to the prior 12 months. Cash-out refinancings also dropped off by 66.0% (Chart 3). The difference in the size of the decline between rate-and-term and cash-out refis likely reflects the fact that many smaller-scale investors use accrued equity as capital to make a down payment on a new acquisition.

Most strikingly, single-family purchases by investors, while still down, fell at a milder pace of 14.7% in the 12 months ending in March 2023. Meanwhile, single-family home purchases by first-time and non-first-time homebuyers fell by 35.5% and 30.9%, respectively. This stark difference demonstrates just how much investors believe in the single-family rental sector. While SFR purchasing activity has felt the impact of higher interest rates and turbulence in the capital markets, its pullback has proven to be less pronounced than other categories of single-family lending.


Occupancy rates across all SFR property types averaged 94.5% in the first quarter of 2023, increasing by 10 bps from the previous quarter, according to U.S. Census Bureau data (Chart 4). DBRS Morningstar, which actively tracks the performance of 128,379 SFR properties, also reported a similar SFR vacancy rate in May 2023.

Rent Growth

According to DBRS Morningstar, vacant-to-occupied (V2O) annual rent growth tumbled in late 2022, falling from a high of 15.7% in June 2022 to reach a low of 4.5% in December (Chart 5). While this V2O rent growth was dramatic, it was also short-lived.

In January 2023, V2O rent growth retreated significantly to 7.0%, and it has continued to recover in two of the past three months, reaching a high of 8.5% through April. The resurgence of V2O rent growth is likely a signal of the resumption of seasonal patterns that were commonplace before the pandemic when price pressures peaked in the early summer and reached a bottom in the early winter.

The annual rent growth of SFR lease renewals decreased in six of the last eight months through March 2023, falling from a high of 7.9% to a low of 6.5%. But, just one month later in April, it saw its largest month-over-month increase on record — a jump of 91 bps to 7.5%.

It’s important to note that current levels of renewal rent growth remain exceptionally high by recent historical standards. Between 2015 and 2020, SFR renewal rent growth did not eclipse 5.0%. Through April 2023, SFR renewal rent growth has been higher than 5.0% for 27 straight months, marking an unrivaled period of sustained gains.

Rent Collections

On-time rent payments in SFR properties remained at healthy levels through the halfway mark of 2023. In June, an estimated 82.1% of units paid their full rent on time, according to the Independent Landlord Rental Performance Report (Chart 6). SFR on-time payment rates had fallen as low as 70.6% during 2020 due to pandemic-related financial distress. However, in the years since rent collection performance has gradually improved. Between the start of the pandemic and September 2022, monthly SFR on-time payment rates eclipsed 81% only five times. Since then, on-time payment rates have held above 81% for nine consecutive months — a testament to the strength of SFR cash flows and the household balance sheets of SFR tenants in a resilient labor market.

Cap Rates

SFR cap rates continued to tick up in the second quarter, rising 18 bps to reach 6.2% (Chart 7).1 Cap rates during the pandemic and its aftermath had compressed as single-family home prices appreciated at a record-setting pace.

Now, as interest rates are higher, investors have started adjusting-up their yield requirements, causing cap rates to rise. Cap rates have either increased or held flat in the past four consecutive quarters, placing SFR cap rates above 6.0% for the first time since mid-2020. The spread between SFR cap rates and 10-year Treasury yields approximates the SFR risk premium. As SFR cap rates ascended and Treasury yields fell slightly in the second quarter of 2023, the SFR risk premium grew to 256 bps — an increase of 23 bps from the previous period, creating the widest spread since the first quarter of 2022 (Chart 8)

At the same time, the spread between SFR and multifamily properties also slightly increased (+11 bps), averaging 108 bps in the second quarter of 2023. After the cap rate spread between SFR and multifamily compressed to an all-time low of 47 bps in the third quarter of 2021, the risk premium has now risen in four of the last seven quarters, more than doubling in that time.


There are consistent differences between the average assessed property values on mortgages originated to single-family owner-occupants versus single-family investors. Underwriters consider factors such as vacancies, turnover, and management-related expenses that owner-occupied units do not have, contributing to lower assessed values for rental units. Additionally, investors are incentivized to target value-add assets rather than paying top dollar for existing value.

In the first quarter of 2023, the average valuation of a single-family rental that received a Fannie Mae mortgage was $316,638 — down 10.8% from the 2022 average (Chart 9). Meanwhile, for owner-occupied units, the average valuation is down by just 0.6% in the first quarter of 2023, falling to $399,437. Subsequently, the average underwritten valuation gap between the two groups of properties has increased to 20.7% through the first quarter of 2023 — its widest point since 2012. The sizeable drop-off in SFR valuations on Fannie Mae mortgages is the likely result of investors becoming more selective. Investors want to have a high degree of confidence that their asset will appreciate over the short term to justify making a purchase. In a housing market with fewer trades, many investors require higher yields and lower prices to execute an acquisition.

Debt Yields

Debt yields, a key measure of credit risk, rose by 18 bps during the second quarter of 2023, jumping to 10.0% (Chart 10). The rise marked the fifth increase in the past six quarters, signaling that lenders are continuing to exercise caution in an unsettled housing market. The rise in debt yields in recent quarters translates to SFR investors securing less debt capital for every dollar of property-level net operating income (NOI). Through the second quarter of 2023, SFR debt declined to $10.05 for every dollar of NOI, a decrease of $0.19 from the previous quarter and a drop of $1.21 from the same time last year.

Supply & Demand Conditions

Residential Default Rates

After a record runup in prices through 2021 and the first half of 2022, many investors believed that a housing market correction was inevitable, which would create a unique buying opportunity. To date, existing home sales have cratered, though valuations have not. The combination of a strong labor market and many homeowners having low-interest rate mortgages has resulted in an exceedingly low rate of mortgage defaults. According to the Federal Deposit Insurance Corporation (FDIC), mortgage default rates fell to a new post-financial crisis low of 1.4% in the first quarter of 2023, declining 4 bps from the end of 2022 (Chart 11).


Purpose-built SFR properties, known as BTR communities, have become a defining feature of the SFR sector, especially within the institutional investor segment of the market. Through the first quarter of 2023, despite a construction slowdown throughout the rest of the single-family rental sector, BTR production remained elevated. Over the past year, BTR accounted for 7.3% of all single-family construction starts — another new record for this product type (Chart 12). For comparison, between 1975 and the start of the prior recession in 2007, BTRs accounted for a little less than 2.0% of all single-family construction starts, according to an analysis of Census Bureau data.

By unit count, there were 68,000 BTR construction starts in the year ending first-quarter 2023 — a 15.3% growth rate from a year earlier.

Tracking Demand

Google Trends can help to identify potential markets for high SFR demand by tracking the popularity of the search term “homes for rent.” In the second quarter of 2023, Memphis, TN, was the area where “homes for rent” was searched most (Table 1). All the top 10 metros where this term received the highest number of searches in Google are in six southeastern Sun Belt states (Tennessee, Alabama, Georgia, South Carolina, Florida, and North Carolina). Demand-side factors and lower average land prices in the Southeast have made this region more attractive to large-scale SFR strategies.


The investment community is betting that the Federal Reserve has reached the peak of its historically aggressive monetary tightening cycle. If interest rates normalize in the coming months, SFR would likely benefit as access to active capital markets would fuel the sector’s sustained expansion.

Notwithstanding institutional capital markets, underlying performance data supports a picture of SFR’s resiliency. Despite overall economic volatility, housing market stress remains exceedingly limited. The cash flows of SFR properties appear sound as rental occupancy rates have steadied, and tenants are increasingly paying their rent on time. While financial market conditions will present ongoing challenges, SFR is uniquely positioned to benefit from a likely increase in demand for high-quality rental housing from those priced-out of homeownership. Over the long term, demographic and structural market trends will likely strengthen SFR’s tailwinds, advancing its standing within the housing market.

1 Unless otherwise noted, the Chandan Economics data covering single-family rental cap rates and debt yields are based on model estimates and a sample pool of loans. Data are meant to represent conditions at the point of origination.

For more single-family rental research and insights, visit

Disclaimer All content is provided herein “as is” and neither Arbor Realty Trust, Inc. or Chandan Economics, LLC (“the Companies”) nor their affiliated or related entities, nor any person involved in the creation, production and distribution of the content make any warranties, express or implied. The Companies do not make any representations regarding the reliability, usefulness, completeness, accuracy, currency nor represent that use of any information provided herein would not infringe on other third party rights. The Companies shall not be liable for any direct, indirect or consequential damages to the reader or a third party arising from the use of the information contained herein.

Small Multifamily Investment Trends Report Q3 2023

Small Multifamily Investment Trends Report Q3 2023

Higher Interest Rates Drive Cap Rates Up as Cash Flows Remain Robust

Key Findings

  • Small multifamily prices fell 3.2% quarter-over-quarter.
  • Cap rates climbed 33 bps between the first and second quarters of 2023, the largest single-period jump since 2009.
  • Property-level cash flows remained healthy as rent collections were robust and expense ratios normalized.

State of the Market

Through the first half of 2023, capital market realities continued testing the resiliency of the small multifamily subsector. More than a year after the Federal Reserve began its monetary tightening cycle, commercial real estate investors are still adjusting to the higher cost of capital. While market disruptions have weakened performance, the scope of the impact has remained limited.

According to Trepp, the delinquency rate of multifamily loans in CMBS transactions stands at 1.6% through June, which is the best mark of any commercial property type other than industrial. The recent trends seen in small asset classes are similar. According to Freddie Mac, 1.3% of small balance multifamily loans are nonperforming — an increase from the 0.7% measured in the summer of 2022 though still below the recent high of 1.7% seen in spring 2021. To place these figures in context, the multifamily nonperforming rate for loans on bank balance sheets reached 4.7% after the 2008 financial crisis, according to data reported by the FDIC.

This year, the rapid recalibration of risk and pricing of small multifamily assets has been widespread. But, as buyers and sellers navigate new challenges, bright spots have emerged. Amid a corrective environment, the operational profile of the small multifamily subsector has held strong, with rent collection trending higher and expense ratios normalizing. While macroeconomic headwinds may not recede soon, tenant dependability, the core strength of small multifamily, has proven to be a powerful antidote to financial market storms.

Lending Volume

The $83.9 billion year-end 2022 estimate of new multifamily lending volume on loans with original balances between $1 million and $7.5 million1 — including loans for apartment building sales and refinancing — represented a modest 10.9% deceleration from 2021’s record high of $94.1 billion (Chart 1).

However, the annualized 2023 total illustrates a market that is starting to show renewed signs of movement. While the current 2023 estimate of $20.8 billion still represents the slowest pace since 2010, second quarter performance was a solid improvement on the first quarter’s reading of $15.5 billion.

One significant factor contributing to the drop off in new small multifamily originations has been the reduced incentive for investors to pursue cash-out refinancing. When interest rates are favorable, borrowers often use accrued equity in their properties to finance subsequent acquisitions. However, in today’s higher-rate environment, a cash-out refinancing would likely result in a voluntary increase in debt servicing costs. As a result, refinancings remained slow in the second quarter of 2023, accounting for just 59.1% of tracked small multifamily originations— a total decrease of 16.5 percentage points over the previous three quarters (Chart 2).

Arbor Small Multifamily Price Index

As measured by the Arbor Small Multifamily Price Index2, small multifamily asset valuations fell 3.2% quarter-over-quarter (Chart 3). Moreover, compared to the same time last year, prices were down 8.4%.

Negative pricing pressures are not unique to either multifamily or the small asset subsector in this interest rate environment. The higher cost of capital means that potential buyers of all property types have larger required yields. Data from recent quarters indicate that some seller capitulation is taking place, leading to higher cap rates and a softening of prices.

Cap Rates & Spreads

As 10-year Treasury yields continue holding at their highest levels in over a decade, cap rates across all commercial property types, including multifamily and the small asset subsector, have been rising. In the second quarter of 2023, small multifamily cap rates averaged 5.6%, reaching their highest point since mid-2019. After cap rates in this subsector reached their all-time low of 5.0% in the third quarter of 2022, they have subsequently risen in three consecutive quarters — and by a growing magnitude in each observation. Small multifamily cap rates jumped 33 bps between the first and second quarters of 2023, marking the largest single-period jump since 2009 (Chart 4).

The small multifamily risk premium, which is best measured by comparing cap rates to the yield on the 10-year Treasury, is a measurement of additional compensation that investors require to account for higher levels of risk. This risk premium rose again in the second quarter of 2023, jumping to 204 bps (Chart 5).

Between 2016 and 2021, the small multifamily risk premium averaged 372 bps and never fell below 290 bps or rose above 441 bps. These fluctuations happened as financial and real estate markets felt the ripple effects of higher interest rates. The risk premium fell as low as 130 bps in the fourth quarter of 2022 — its lowest level on record. As a result, recent premium increases represent a normalization of risk pricing as the spreads move back toward historical averages. Meanwhile, the cap rate spread between small multifamily assets and the rest of the multifamily sector, a measure of the risk unique to smaller properties, rose 26 bps during the quarter to finish at 56 bps (Chart 6).

Expense Ratios

Expense ratios, measured as the relationship between underwritten property-level expenses and effective gross income, are showing signs of improvement. Driven by increases in vacancies and operating expenses, the small multifamily expense ratio surged to start the year, reaching 44.7% in the first quarter (Chart 7). However, during the second quarter, this expense ratio retreated 231 bps quarter-over-quarter to settle at 42.4%, close to its 2019-2022 average.

Rent Collections

On-time rental payment rates in small multifamily properties have consistently been robust in recent months, according to Chandan Economics and RentRedi’s Independent Landlord Rental Performance Report. In June 2023, full rent was paid on time in an estimated 82.6% of units — improving 153 bps from the same time last year (Chart 8).

Thanks to a resilient labor market, tenants’ continued ability to make on-time rental payments continues to be one of the small multifamily subsector’s biggest assets. Even in a challenging economic environment, healthy property-level cash flows will likely continue to limit small multifamily property owners and lenders from experiencing distress.

Leverage & Debt Yields

While signals are mixed, debt underwriting standards remained tight through the second quarter of this year. Loan-to-value ratios (LTVs) slid in four consecutive quarters through the first quarter of 2023. After a dramatic drop of 501 bps between the fourth quarter of 2022 and the first quarter of 2023, average small multifamily LTVs reached 59.7%. However, in the second quarter, LTVs bounced back to 63.8% (+409 bps). While the quarter-over-quarter improvement is significant and encouraging, current LTV levels remain historically low. Aside from the first quarter of 2023, which was an outlier due to low transaction activity, small multifamily LTVs were lower in the second quarter than at any point since 2013 (Chart 9).

 Average debt yields for small multifamily loans remained at 9.0% in the second quarter of 2023 (Chart 10). After debt yields jumped by 95 bps in the first quarter — the largest quarterly jump in 15 years — they edged 3 bps higher, demonstrating the effect of tight underwriting standards. The inverse of debt yields, the debt per dollar of net operating income (NOI), for small multifamily loans fell slightly. Small multifamily borrowers secured an average of $11.14 in new debt for every $1.00 of property NOI, down $0.03 from the previous quarter and the lowest level since 2015.

Together, the trends in LTVs and debt yields indicate that underwriting standards remain conservative as capital and real estate markets adjust to new economic realities.


Like all commercial real estate asset classes, the small multifamily market will continue to be challenged over the next several months. While the Federal Reserve signaled it is near the end of its monetary tightening cycle, interest rate normalization is likely to take time. Looking a year ahead, there is a greater than 65% chance the federal funds rate will sit higher than 450 bps in July 2024, according to the CME Group’s FedWatch tool. Given the interest rate outlook, Fannie Mae forecasts that multifamily cap rates will continue rising through the rest of 2023 and into early 2024. At the same time, it forecasts that net operating growth will remain positive for the foreseeable future — underscoring the present decoupling of asset-level operations and financial market conditions. If all things remain equal, negative pricing pressures are unlikely to abate through the second half of the year. Still, small multifamily, strengthened by its healthy property-level cash flows, remains well-equipped to overcome macroeconomic headwinds.

1 All data, unless otherwise stated, are based on Chandan Economics’ analysis of a limited pool of loans with original balances of $1 million to $7.5 million and loan-to-value ratios above 50%.
2 The Arbor Small Multifamily Price Index (ASMPI) uses model estimates of small multifamily rents and compares them against small multifamily cap rates. The index measures the estimated average price appreciation on small multifamily properties with 5 to 50 units and primary mortgages of $1 million to $7.5 million. For the full methodology, visit

For more small multifamily research and insights, visit

All content is provided herein “as is” and neither Arbor Realty Trust, Inc. or Chandan Economics, LLC (“the Companies”) nor their affiliated or related entities, nor any person involved in the creation, production and distribution of the content make any warranties, express or implied. The Companies do not make any representations regarding the reliability, usefulness, completeness, accuracy, currency nor represent that use of any information provided herein would not infringe on other third party rights. The Companies shall not be liable for any direct, indirect or consequential damages to the reader or a third party arising from the use of the information contained herein.

Special Report: Spring 2023

Navigating a Corrective Environment

By Ivan Kaufman and Sam Chandan

About The Authors

Ivan Kaufman is the Founder, Chairman and CEO of Arbor Realty Trust, Inc. (NYSE:ABR), a leading multifamily and commercial real estate lender and real estate investment trust. Arbor manages and services a $30 billion real estate loan portfolio and originates more than $7 billion in loans annually. Arbor is recognized as a top lender by Fannie Mae and Freddie Mac. Ivan is also the cofounder of Arbor Multifamily Acquisition Company (AMAC), an investment firm created in 2012, which owns and operates over 8,000 units and has acquired more than $1.75 billion of multifamily properties across the country. Through his successful development and evolution of many companies that span nearly four decades through all cycles, Ivan Kaufman is a trusted thought leader and pioneer in all aspects of commercial real estate finance.

Sam Chandan is a professor of finance and Director of the Chen Institute for Global Real Estate Finance at the NYU Stern School of Business. He joined the Stern faculty in late January 2022. From 2016 through early January 2022, he was the Larry & Klara Silverstein Chair and academic dean of the Schack Institute of Real Estate at the NYU School of Professional Studies, one of the world’s largest centers of real estate education. He is also the founder of Chandan Economics, an economic advisory and data science firm serving the institutional real estate industry, a contributor to Forbes, and host of the Urban Lab on Apple Podcasts. Dr. Chandan is chair of the Real Estate Pride Council, a global association of lesbian, gay, bisexual, and transgender leaders in the professions of the built environment. Dr. Chandan is a Fellow of the Royal Institution of Chartered Surveyors (FRICS), the Royal Society for Public Health (FRSPH), and the Real Estate Research Institute (RERI), and an Associate Member of the American Society for Microbiology (ASM). His multifaceted research interests address real estate as well as urban epidemiology and the preparedness of global cities and other systemically important urban areas in managing novel public health threats.

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Key Findings

  • The sustainability of consumer financing and geopolitical tensions are risk factors capable of triggering an economic contraction more severe than baseline forecasts.
  • Unlike other commercial property types, the market standard of amortizing mortgages will insulate the rental housing sector from expiring debt distress.
  • SFR/BTR should see structural gains despite cyclical headwinds as awareness for the product type grows and hybrid work supports a broader geography of housing choices for urban-working Americans.
The Outlook

With the books closed on 2022, it is time to take stock and calibrate our expectations for the 12 months ahead. As we sit here today, in our industry and throughout the economy as a whole, we are in a corrective environment. However, the upshot is that, in our baseline forecasts, the economy is equipped and capable of absorbing a mild recession without triggering a 2008 (or pandemic shutdown) style event.


One unknown clouding the outlook is the Federal Reserve’s ongoing monetary tightening as it seeks to slow runaway inflation. The Fed moved its policy rate up by 425 bps between March and December last year. Even as the pace of inflation and interest rate increases have slowed in recent months, markets believe the tightening cycle has more runway ahead — a sentiment echoed in Federal Reserve Chairman Jerome Powell’s public statements (Chart 1).


Of course, the central bank is mindful of the fact that changes in monetary policy impact the economy with a lag. As a result, it risks overshooting its target and tightening by more than is needed. Still, the Fed has stated it will engage in monetary policy that balances the importance of price stability with strong employment to maximize the likelihood of a soft landing.


Risk Factors Abound

Front and center on the list of concerns for rental housing investors heading into next year are the business cycle and macro economy. Changes in the macro environment impact capital availability, tenant and buyer spending power, and risk appetites generally. While our median forecast for the year ahead calls for the economy to bend rather than break, the scope of uncertainty is broader today than it was before the pandemic. Beyond ongoing geopolitical tensions, several sources of concern are capable of triggering a severe contraction in 2023.


One of these significant risk factors is the sustainability of consumer activity. Thus far, despite a pervasive nervousness surrounding inflation and the economy’s year-ahead prospects, consumers have remained resilient and have not cut back on spending. Personal consumption expenditures are up through October by 7.9% from a year earlier. Even after accounting for the impact of inflation, consumption is 1.8% above last year’s levels (Chart 2).


A tight labor market and healthy levels of wage growth have, up until this point, allowed consumers to postpone a spending curtailment. The challenge is when we look at how consumers are financing current expenditures. Credit card debt is at all-time highs, and we are seeing higher levels of utilization of existing consumer credit lines even as the cost of revolving credit is significantly higher than it was one year ago. Worse, personal savings rates have dropped off dramatically, reaching their lowest levels since 2005 (Chart 3). Taking these factors together paints a picture of consumers quickly drawing down on their safety cushion resources.


Beyond the risks within our borders, we would be wise to remember that the U.S. sits inside a global ecosystem of trade, politics, climate, and epidemiology. There is no escaping the fact that the current geopolitical landscape is tense, and the potential for greater disruption is significant. If the war in Ukraine were to escalate to involve NATO coalition forces directly, implications for energy markets would be substantial. Additionally, the potential for further deterioration of trade or diplomatic relations with China also stands as a source of concern.


Rental Housing: Insulated, Not Immune

Within the market for rental housing in the U.S., the sector is uniquely positioned to withstand the unrelenting blitz of economic headwinds. Of course, many commentators are pointing to a slowdown in apartment rent growth as a sign of growing weakness. However, we do not view that as reflective of any structural change in the profile of demand or supply but rather a cyclical feature. It is normal to expect a period of slowing rent growth while there is uncertainty in the economic outlook and greater risk aversion among households.


While no asset class is immune from the challenges of higher interest rates, the presence of amortization makes the multifamily sector less likely to see mounting distress. All HUD-conforming multifamily loans are fully amortizing. Moreover, Fannie Mae- and Freddie Mac-conforming multifamily loans require at least partial amortization. Where we are most likely to see debt-related difficulties next year and beyond are with CMBS transactions. According to data from Trepp and the Mortgage Bankers Association, a majority (64.6%) of outstanding CMBS loans are categorized as interest-only over their entire term. Operators with expiring interest-only loans may run into trouble next year as they try to replace debt at roughly twice the cost. Accounting for just 10.5% of CMBS debt outstanding, the multifamily sector’s exposure to these transactions is limited. Meanwhile, the same cannot be said for the office, retail, and hotel sectors — all of which rely more on CMBS capital markets.


On the margins, subsets of mortgages in the multifamily portfolio will still require careful monitoring, especially those that originated in the years leading up to the pandemic, where over-leveraging was a re-emergent concern.


The criterion where real differences are likely to emerge over the next year is along geographic lines. According to MSCI Real Capital Analytics, through the third quarter of 2022, nearly half (48%) of U.S. markets are seeing rising apartment cap rates —  the highest share since 2010 (Chart 4). We can expect that these performance trends will continue, driven by slowing business sectors and evolving migration patterns.


Work-from-home, a trend that seemed capable of upending the rental housing market’s appraising assumptions just a few months ago, now looks like less of a risk than initially feared. Hybrid has quickly become the dominant alternative to full onsite employment. As a result, more workers are expanding their housing search radius, though they are not un-tethering from their offices completely (Chart 5).


Among the beneficiaries of the hybrid work proliferation is a product type that was already enjoying a run of success: single-family rentals (SFR). Beyond a growing willingness of workers to locate further away from their urban offices, the SFR sector is likely to benefit from increased visibility. Although built-to-rent (BTR) communities with amenities have received less attention thus far, their demand should climb as greater awareness of this product type develops.


As accessibility to affordable quality housing remains a pressing challenge across the country, it is critical to note that the BTR sector is an area of growth that is adding net new homes. According to U.S. Census Bureau, BTR construction starts reached all-time highs even as the broader single-family construction landscape reached an inflection point (Chart 6). Ultimately, we see SFR/BTRs as critical alternatives in the diversification of housing opportunities for all Americans, no matter their homeownership capacity or preference.


The Road Ahead

In the months ahead, we can broadly expect a continued correction in the residential housing market, though we do not anticipate a 2008-style crisis. Mortgage underwriting standards for owner-occupied single-family homes remained tight over the past several years. Moreover, the combination of low locked-in interest rates on outstanding mortgages and relatively strong labor market conditions means that defaults and disclosures should remain limited. Of course, owners that need to sell will have no choice but to capitulate, and market clearing prices should move lower. However, many of the risk factors necessary for widespread distress in the residential housing market are simply absent.


The historically low interest rates enjoyed by existing owners are unlikely to return over the medium term. Even as the Fed eventually regains control over pricing pressures and has the rate-cutting ammunition to reintroduce monetary accommodation, it is unlikely that we will revert back to near-zero interest rates. According to the Fed’s estimates, it expects a long-run average of 2.5% for its Federal Funds Rate. If these estimates hold true, 30-year mortgage rates would remain well above levels that buyers have become accustomed to in recent years. As a result, home financing conditions will continue to support higher levels of rentership.


Undoubtedly, the current market environment contains an underlying anxiousness. This is a moment of accelerated change both in our industry and throughout the economy, and we will not make it to our final destination without some in-flight turbulence. All signs point to the economy entering the early stages of a contraction. However, the big difference between this moment and the housing bubble we saw in the 2000s is that housing in the U.S. today is undersupplied, not oversupplied. While the rental housing sector will not be immune from challenges along the way, it sits in a position of strength to withstand the ongoing storm.


Affordable Housing Trends – Spring 2023

Affordable Housing

Trends Report

Spring 2023

About This Report

The Arbor Realty Trust Affordable Housing Trends Report, developed in partnership with Chandan Economics, offers a wide-ranging lens into the complex, though critically important, affordable and workforce housing sectors. The aim of the report series is to provide a comprehensive primer for industry stakeholders to better understand the major trends shaping the market.


This series focuses on affordable housing supported by government subsidies or tax incentives like the Low-Income Housing Tax Credit (LIHTC), as well as the Naturally Occurring Affordable Housing (NOAH) segment. It addresses the significant changes observed both in terms of policy decisions and market dynamics and describes opportunities for investment and financing in the space.

Key Takeaways

  • The Inflation Reduction Act of 2022 provided $4 billion in additional funding for the Housing Choice Voucher program, though further increases have met resistance.
  • The shortage of affordable rental housing units grew by 500,000 from 2019 to 2021, reaching 7.3 million units.
  • The 2024 Federal budget includes higher funding levels and rules changes to the Low-Income Housing Tax Credit program to encourage more affordable housing development.
Terms and Definitions

Sources: U.S. Department of Housing and Urban Development; Tax Policy Center; Chandan Economics

State of the Market

The creation and preservation of affordable housing units in the U.S. have made great strides in recent years, but there has also been a fair share of setbacks. The affordable housing gap has widened even as funding levels for targeted programs have increased. As calls for change grow louder, economic headwinds are presenting a new set of challenges. 


The Gap: A Shortage of Affordable Rental Homes, the National Low Income Housing Coalition’s (NLIHC) 2023 annual report, looked into how many units are affordable and available to extremely low-income (ELI) renters.1 No state in the U.S. and no major metropolitan area currently has enough supply to meet demand (Chart 1). South Dakota leads the nation with 58 units available per 100 ELI renters, while Nevada (17 units per 100 renters), Florida (23 units), and Texas (25 units) have the fewest affordable housing options. The NLIHC’s analysis shows that as public awareness of the affordable housing crisis in the U.S. grew so has the need for action. Between 2019 and 2021, the U.S. shortage of affordable rental homes increased by 500,000 units, reaching 7.3 million.

The federal government has made progress in expanding the Housing Choice Voucher (HCV) program, though recent additions have yet to prove to be transformational. Moreover, the Low-Income Housing Tax Credit (LIHTC) has faced a shortfall. The White House made an overhaul to both programs a priority in its 2024 budget proposal. The National Multifamily Housing Council (NMHC) applauded the Biden administration for its affordable housing focus and its “multi-faceted approach to meet housing demand”; however, NMHC also noted that the proposal’s call to have developers pay for the program expansions through higher taxes would work against the policy’s intention.


Rent control has remained a hot-button policy issue throughout the country. At least eight states (Massachusetts, Minnesota, Montana, New Hampshire, New Mexico, South Carolina, Virginia, and Washington) are actively considering new rent control measures at the state or local level. These types of corrective actions can have the unintended effect of reducing the incentive for private developers to add new housing supply. As a result, rent controls may do more to treat the symptoms, not the causes, of local affordable housing challenges, potentially exacerbating long-term supply-demand mismatches. Still, state legislatures are fluid incubators for creating new policy models for reaching higher equilibriums of affordable supply. California, which has the most restrictive statewide rent control in the country, recently authorized $7.2 billion in new spending over the next three years to encourage affordable housing and combat homelessness. Florida recently signed into law a provision that bans statewide rent control while also providing its state-sponsored Housing Finance Corporation $711 million in new funding to increase workforce housing options. New York State also recently announced a new affordable housing plan, which targets zoning code changes to encourage the development of new supply.

LIHTC: Policy Initiatives Aim to Close Financing Gaps

The Low-Income Housing Tax Credit (LIHTC) is the nation’s single-largest affordable housing program that directly addresses supply. It comes in two forms: a 9% tax credit to incentivize new development and a 4% tax credit for the rehabilitation and preservation of existing properties. According to the National Housing Preservation Database, LIHTCs support approximately 2.5 million rental units. However, new unit additions in the LIHTC program have slowed, according to the U.S. Department of Housing and Urban Development (HUD). Between 2007 and 2020, the number of new low-income units placed into service under the LIHTC program gradually dropped off from an annual high of 126,796 units to a recent low of 44,732 units.2


A key reason for the limited growth of new units in the LIHTC program is that developers often experience significant funding gaps for new projects. Construction costs have soared while the 9% LIHTC tax credit, which developers will sell off to finance their projects, has declined in value. LIHTC equity prices took a significant hit after the 2016 election, dropping by roughly 10% as investors anticipated and eventually received a decrease in tax liabilities (Chart 2).3 LIHTC equity prices eventually stabilized between $0.87 and $0.89 per credit, where they remain today, according to CohnReznick. The drop-off in LIHTC equity prices after 2016 meant that developers could not raise as much project capital by trading their tax credits. As a result, the adoption of a 4% LIHTC tax credit for rehabilitation became more attractive than the 9% tax credit for ground-up development, leading to a surge in its utilization in 2017.

The rehabilitation tax credit became more attractive after the December 2020 passage of the Consolidated Appropriations Act, which established a minimum 4% floor on the applicable federal tax credit rate for tax-exempt multifamily housing private activity bonds (PABs). The minimum floor made the 4% tax credit more valuable and increased how much funding developers can raise to finance construction. Through the fourth quarter of 2022, the share of LIHTC mortgages utilizing the tax credit remained elevated at 4.1%.


The dollar volume of HUD-insured LIHTC mortgages grew substantially over the past decade. However, there was an inflection in 2022 (Chart 3).4 In the fourth quarter of 2022, the dollar volume of newly issued mortgages utilizing LIHTC tax credits covered under insurance from HUD declined again — falling 16.3% to $955 million, according to HUD’s Insured Multifamily Mortgages Database. The removal of temporary factors that boosted volumes in 2021, including the 12.5% expansion of the 9% tax credit and other disaster-related credit allocations, may partially explain the 2022 inflection. Moreover, widening financing gaps are also limiting the volume of newly insured LIHTC mortgages.

More recently, the Federal Housing Authority (FHA) has shared positive updates, but there is widespread recognition that the program needs a more sizable overhaul. In September 2022, the FHA announced that it was increasing the frequency of allowable surplus cash distributions with most FHA-insured multifamily mortgages, making HUD-insured mortgages more like private debt instruments, boosting investor appeal. A late-2022 bipartisan push to lower private-activity bond financing requirements from 50% to 25% failed to make it into the 2023 budget resolution. However, the White House has called for the rule change as part of its 2024 budget proposal, in addition to a $28 billion expansion of the program over the next decade.

HCV: Marginal Annual Gains Fail to Keep Pace with Demand

While LIHTC is the largest supply-side affordable housing program, the Housing Choice Voucher (HCV) program is the largest overall, accounting for 2.7 million units.5 The HCV program accounted for 53.1% of all federally subsidized rental units in 2022, a rise of 70 basis points (bps) from 2021 (Chart 4).

The next largest program by unit count, Project-Based Section 8, is a distant second, accounting for 25.6% of federally subsidized units.


The HCV program is primarily a form of tenant-based housing assistance, where renters spend 30% of their adjusted monthly income on rent, and the balance is covered through a subsidy. It provides targeted assistance to very low-income households. The average household income for renters in this program in 2022 was $16,019.


HUD’s policy guidelines dictate that 75% of new families accepted into the program must earn at most 30% of the local area median income (AMI). The balance of households in the program may earn up to 80% of AMI. HCVs are widely supported by private-market advocates. Unlike rent control, which places the burden of the subsidy on the landlord, HCVs interact openly in a market setting. Moreover, a renter household can retain their subsidy should they move, encouraging positive housing mobility.


The HCV program has expanded slowly in recent years, failing to keep pace with growing market needs. Aside from 2017 and 2018, the number of units covered under the program has expanded between 1.1% and 2.7% per year since 2012 (Chart 5). While recent White House efforts for a more significant expansion of vouchers have failed to garner enough congressional support, momentum has been building over the past year. Within the signed version of the Inflation Reduction Act of 2022, HUD was provided an additional $4 billion for HCV expansion.


Since then, $23.5 billion has been provided for the 2023 fiscal year, which would cover all current in-place vouchers through this year. The 2023 budget bill also set aside a separate $4 billion that will become available to the agency in October 2023 if the previous amount is expended. The additional funding is estimated to be enough to expand vouchers to an additional 12,000 new households.


With the election season approaching, legislative compromise on affordable housing outside of budget reconciliation debates is less likely. Still, there remains enough bipartisan support for voucher expansion that it may pick up support in the upcoming 2024 budget negotiations. In a recent summary of the Administration’s housing proposals, HUD detailed a proposed $2.4 billion funding addition to the HCV program, which would maintain existing contracts and expand coverage to an additional 50,000 households.


On the congressional level, Senators Chris Coons (D-Del.) and Kevin Cramer (R-N.D.) re-introduced the Choice in Affordable Housing Act, in January 2023, which aims to increase the number of landlords that accept vouchers and expand overall access to affordable housing. The Coons-Cramer bill proposes to designate $500 million towards creating a new Housing Partnership Fund that would allow local housing authorities to award “signing bonuses” to a landlord of a unit in an area with a poverty rate below 20% and allow prospective tenants to receive security deposit assistance. The act would also require HUD to expand its use of Small Area Fair Market Rents to determine rents in a given area while removing some red tape from the approval process.


The Coons-Cramer bill has picked up several bipartisan co-sponsors and enjoys the endorsement of key national interest groups, such as the National Apartment Association, the National Low Income Housing Coalition, and the National Multifamily Housing Council, among others.


NOAH: Investors Rally Behind Workforce Housing

While most of the attention paid to the affordable housing sector focuses on regulation and policy intervention, the scale of the naturally occurring affordable housing (NOAH) supply is greater. By some estimates, NOAH outnumbers regulatory-supported units by a factor of four — a figure supported by Freddie Mac lending data. For multifamily loans originated in 2022, 87% of the units affordable at 80% or below of local AMI are NOAH properties (Chart 6).6 Moreover, on a quarterly basis, this share has ranged between 78% and 93% over the past three years.

In 2023, both Fannie Mae and Freddie Mac will have a $75 billion multifamily lending cap, with a direction that at least 50% of their loan volume is mission-driven lending, such as support for the creation and preservation of affordable housing, including NOAH. Given the lower regulatory burden associated with NOAH and the ample liquidity available in the space, investors remain optimistic about the growth of this sector in 2023. According to the 2023 ULI-PwC Emerging Trends in Real Estate, no residential sub-sector had a higher favorability rating for investment or development prospects than moderate-income/workforce housing.


What to Watch: Affordable Housing Creation Faces Challenges

Industry and advocacy-based priorities have uniquely converged on the issue of affordable housing in recent years, and the momentum has so far carried through 2023. On March 7, 2023, NMHC President Sharon Wilson Géno testified in front of the U.S. Senate Committee on Finance to discuss how tax policy could help reduce the supply-demand gap and increase housing affordability. In her remarks, Géno affirmed the multifamily industry’s push for an expansion of LIHTC incentives for adaptive reuse projects and easing regulatory rules for construction.


Géno’s testimony is timely, given the upcoming negotiations concerning the 2024 federal budget, which will likely include a significant push for affordable housing legislation. On March 13, HUD released the details of the Biden administration’s proposed budget for the agency that includes an expansion of the HCV program and a proposal to increase housing supply through a $300 million increase in the HOME Investment Partnerships Program (HOME), which is tasked with constructing and rehabilitating affordable rental housing.


Today’s divided U.S. Congress may make it more challenging to enact all of these spending priorities, but bipartisan interest in solving housing’s affordability crisis should give the issue traction on Capitol Hill.


Politics aside, market developments, including material cost inflation and tightening financial conditions, present potential headwind risks that investors should keep on their radar. Last year, vital progress was made toward affordable housing goals, but inflation and rising economic uncertainty threaten to weaken its long-term impact. As the affordable housing shortage continues growing, it will be critical for industry and political consensus to coalesce and translate into meaningful action.


For more affordable housing research and insights, visit

1 NLIHC defines ELI renters as those with “incomes at or below either the federal poverty guideline or 30% of their area median income, whichever is greater.”.

2 These data are released by the U.S. Department of Housing and Urban Development (HUD) and can be retrieved here. According to HUD, 2021 data are scheduled for release in Spring 2023.

3 LIHTC Equity Pricing Trends are calculated as a quarterly series by Chandan Economics. 4% LIHTC usage is displayed as a four-quarter moving average. Novogradac data are from Q1 2016 through Q4 2019. CohnReznick data are from the first quarter of 2020 through the fourth quarter of 2022.

4 Data presented in Chart 5 are displayed as a four-quarter moving average based on the date of initial endorsement.

5 Total is based on data retrieved from HUD’s Office of Policy Development and Research; data are through 2022.

6 According to a Chandan Economics analysis of Freddie Mac K-Deals.

All content is provided herein “as is” and neither Arbor Realty Trust, Inc. or Chandan Economics, LLC (“the Companies”) nor their affiliated or related entities, nor any person involved in the creation, production and distribution of the content make any warranties, express or implied. The Companies do not make any representations regarding the reliability, usefulness, completeness, accuracy, currency nor represent that use of any information provided herein would not infringe on other third party rights. The Companies shall not be liable for any direct, indirect or consequential damages to the reader or a third party arising from the use of the information contained herein.

2022 Top Markets for Large Multifamily Investment Report


In an otherwise uneven economic environment, multifamily real estate and other investment classes adept at absorbing inflationary pressures have outperformed the rest. Within the surging multifamily sector, certain markets shined brightly this year. The 2022 Arbor Realty Trust-Chandan Economics Large Multifamily Opportunity Matrix highlights the top 50 U.S. metros for investment.



This report presents an analytical framework to develop a cross-market comparison for large multifamily investments. For the purposes of this analysis, “large multifamily” is considered to be assets containing 50 or more units with a valuation exceeding $20 million (note: $15 million original balance was used as a cutoff for large multifamily loans).

The top 50 U.S. metros1 are ranked using the Arbor-Chandan Large Multifamily Opportunity Matrix based on a composite of performance metrics. The Opportunity Matrix pays specific attention to how well metro-level economies have maintained strength over the past year and how markets have been positioned to benefit from continued labor and housing market shifts in 2023 and beyond. Overall, the matrix finds three western markets best suited to build on their strengths in the year ahead: San Antonio, Kansas City, and
Las Vegas.

1 The top 50 metros are based on population estimates. All metros are reported at the Metropolitan Statical Area (MSA) level.

Key Findings

  • Robust population growth and a relatively low level of new development make San Antonio the top target for multifamily investment.
  • Orlando stands out as the nation’s leading WFH importer, boasting a high share of new remote workers, many of them recent arrivals.
  • Las Vegas, previously the third-ranked market, remains near the top of the matrix largely due to its success in attracting remote workers.

PDF link below

The Opportunity Matrix

The 2022 Arbor-Chandan Large Multifamily Opportunity Matrix (Table 1) measures eight key categories:

  1. Large Multifamily Investment: measured as a proxy for debt financing availability, overall liquidity, and a market’s ability to support additional multifamily investment. Multifamily loans (both acquisitions and refinancings) with original balances above $15 million are included for analysis.
  2. Labor Market: topline profile of key labor market performance indicators, including market size and growth, unemployment rate, change in the unemployment rate over the past year, and wage growth.
  3. Population Growth: overall growth of a metro over the short and medium term.
  4. Renter Demographics: spending power and age profile of existing renters (higher household incomes and younger householders assumed as conducive for higher levels of multifamily demand).
  5. Renter Migration: measures the market’s ability to retain existing renters and attract renters from elsewhere, as well as market-level affordability.
  6. Supply/Demand Equilibrium: compares aggregate population increases to the volume of new multifamily permitting activity as a proxy for market tightness and ability to absorb new, large-scale multifamily supply.
  7. Work From Home (WFH) Importers: proxy measures of which markets are attracting WFH workers from elsewhere.
  8. Mean Reversion: a control that accounts for 2021’s rapid increase in residential asset values and the possibility of a price correction.
Categories 7 and 8 were added this year to reflect today’s unique circumstances. The Opportunity Matrix includes factors a multifamily investor might consider in their market selection process. All eight categories have received equal weighting. In categories with more than one variable, each variable was weighted equally.

Top Ranked Markets

San Antonio is 2022’s top-ranked market, thanks to a well-rounded set of fundamentals, including one of the highest population growth rates in the country (Chart 1). Across the 21 data point inputs in the matrix, San Antonio scored better than the median metro in 15. Further, when comparing San Antonio’s population in-flows to the amount of new multifamily supply that is coming on board, it has one of the nation’s largest supply gaps, which should benefit multifamily investment outcomes. With the largest state-level economy in the country, Texas has made recent concerted efforts to increase inter-city mobility. While not as ambitious as the planned high-speed rail between Dallas and Houston, San Antonio and Austin are adding new public bus routes between the two cities — doubling down on their geographic proximity.

For a full breakout of the 2022 and 2021 MSA composite scores and rankings, see Table 3 in the Appendix at the back of the report.

After appearing as a middle-of-the-pack metro in 2021 (ranked 29 out of 50), Kansas City claimed the No. 2 spot in the 2022 rankings. Relative to its population, Kansas City had the 4th-most large multifamily lending volume of all top 50 metros in the year ending in the second quarter of 2022. Kansas City also performed favorably in key measures of renter attractiveness. It had the 10th most affordable cost of housing and the 10th highest share of apartment searchers looking to stay within the metro. In other words, Kansas City has a strong pitch for alluring new rental demand and succeeds at retaining renters to stay once they get there. Missouri’s largest city is also proving to be a laboratory for modern urbanism. In 2020, Kansas City became the first major metropolitan metro to launch a zero-fare mass transit pilot program. According to REBusinessOnline, there is currently “no end in sight” for Kansas City’s expanding multifamily housing needs.

Large Multifamily Lending

Large multifamily investment across U.S. markets has been anything but uniform. Here, we analyze a pool of loans across the top 50 metros with originations between July 2021 and June 2022 and original balances above $15 million. Lending volumes include loans originated for both investment sales and refinancings. These data are leveraged as a proxy to determine which markets have the most liquidity to support large multifamily investments. Leading the way were Dallas, New York, and Los Angeles, which accounted for 7.1%, 6.9%, and 6.8% of the observed sample, respectively (Chart 2)

Supply/Demand Equilibrium

In this category, we compared metro markets’ 2021 population inflows to the volume of multifamily permitting activity over the 12 months ending June 2022. This framework is intended to proxy market tightness and demand for new supply. Markets with greater population inflows relative to the addition of new multifamily housing supply could expect upward pressure on pricing. Applying the logic on the reverse side of the spectrum, markets with population outflows or high levels of new multifamily construction relative to incoming housing demand could expect a softening of price pressures.

Dallas, which was the 7th ranked market in the overall matrix, ranked first in this category (Chart 3). Dallas’ population increased by 97,290 people in 2021 while 26,537 multifamily permits were tracked over the sample window. Other top performers in this category were Phoenix and Houston. New York and Los Angeles trailed behind thanks to sizable population outflows in 2021.

Work From Home

Historically, housing demand has been viewed as a function of local labor demand. The more jobs in an area, the more people would choose to co-locate in proximity, creating upward pressure on rental demand. The proliferation and diffusion of remote employment in recent years has disrupted the geographic relationship between where people work and where they live.

For this analysis, we sought to establish a framework that would identify which markets have been successful at attracting remote workers. Markets that are WFH importers should have an advantage in growing their rental demand base. Utilizing the 2020 American Community Survey, the following two data points were calculated and factored into the opportunity matrix:

1. WFH recent movers as a % of all local workers
2. Recent movers as a % of the local WFH workforce

For this analysis, individuals who reported having a job while having no commute time were considered “WFH workers.”

Measuring newly arriving remote workers as a percentage of total workers in the metro area, Washington, D.C., had the highest share in the nation, at 1.8% (Chart 4). Next were Portland (1.6%) and Orlando (1.6%). On the other end of the spectrum, Columbus (0.1%), Riverside (0.1%), and Oklahoma City (0.2%) had some of the lowest shares of newly arriving remote workers.

Looking only at the WFH workforce and what share had recently moved to each market, a different set of metros rises to the top. The only crossover was Orlando, where 9.8% of its WFH workers had recently moved — the highest share in the nation (Chart 5). Following Orlando were Las Vegas (9.0%) and New Orleans (7.0%).

Mean Home Price Reversion

Factoring heavily into the 2022 opportunity matrix are considerations for mean reversion. For this analysis, the mean is the national growth rate for all home values last year. Metros were compared based on how far local home price growth differed from the national average.

All of 2021 and early 2022 were exceptionally robust periods for residential valuation growth. On average, home prices grew 19.5% over the 12 months ending in March 2022 — 14.3% above their 2015-2019 average (5.2%). The trend held up for apartments as well. According to the MSCI Real Capital Analytics CPPI for apartments, asset prices grew by a steep 21.8% in 2021, rising 11.9% above their 2015-2019 average growth rate (9.8%).

There is a higher risk for downward price adjustments in markets that saw the most appreciation over the past year. In other words, given how quickly and by how much property values soared through 2021 and early 2022, mean reversion may be at play.

In designing this framework, the model assesses and ranks how closely home prices rose in respective markets compared to the national average. In doing so, the model penalizes some of last year’s most standout markets, including Austin (+33.3%), Phoenix (+30.1%), and Tampa (+29.0%). At the same time, some of last year’s laggards also received poor rankings here, including San Francisco (+9.5%), New York (+11.4%), and Philadelphia (+13.4%). The markets that tracked most closely to the national average last year, Portland (+19.1%), Los Angeles (18.9%), and Indianapolis (19.8%) were rewarded in this ranking system.

Market Spotlight: San Antonio

The San Antonio metropolitan area has dug in its spurs, rising to the top of the 2022 Opportunity Matrix. Simply put, San Antonio is expanding its metro-level population and is proving to be an attractive destination for renters.

Population trends in the San Antonio metro area point to sustained growth in multifamily demand. In 2021, the San Antonio population grew by 35,105 people. Its 1.4% annual growth rate was the fifth highest in the country. Since 2011, San Antonio’s population has swelled, expanding by 18.6% over that time — nearly three times higher than the national growth rate over the same period (+6.4%). Looking ahead, San Antonio’s “population is forecasted to grow at twice the national rate, and even faster in the 20–34-year-old prime renting cohort,” according to Fannie Mae.

Beyond the inflow of new housing demand, demographic trends are also broadly supportive of San Antonio’s multifamily sector. It ranked 11th for the highest share of renter households and the highest rentership rate for households headed by persons under the age of 35. Further, the ascending Texas metro had the 10th highest average renter household income in the country.

The San Antonio labor market has both retained its strength throughout the pandemic, as well as built upon it. While Austin often receives a lot of attention as Texas’ dominant tech hub, San Antonio is quietly making a name for itself in this arena as well. According to a Brookings analysis, San Antonio was among a collection of secondary metros to gain from the dispersion of tech jobs as workers no longer needed to co-locate near a physical office place during the pandemic. Financial services, while just San Antonio’s sixth largest sector, is also a significant area of opportunity. Through June 2022, San Antonio had already eclipsed its pre-pandemic financial employment peak by 3.9% (Chart 6). Further, its finance sector is growing at a 6.0% annual rate, more than twice the national average (+2.4%).

Altogether, the San Antonio multifamily market is ripe with possibility. According to Yardi Matrix’s May 2022 report on the metro, occupancy rates were holding above 95%, and a slowed pipeline of apartment deliveries is likely to keep upward pressure on rents in the near term. Desirable urban amenities (such as the River Walk), the availability of developable downtown sites, strong population growth, and desirable demographic factors all combine to make San Antonio the rising star of the Lone Star state.


In 2022, the multifamily investment environment finds itself in uncharted territory once again. Historic increases in asset prices over the past year reasonably should give investors pause, especially since the Federal Reserve appears unlikely to slow its monetary tightening cycle. At the same time, multifamily assets are uniquely positioned to capture additional housing demand as the cost of homeownership has risen. All else equal, the U.S. multifamily market is likely to remain balanced by headwinds and tailwinds over the year ahead. The future of WFH, and most critically, the geographic relationship between one’s home and job, is one of the biggest open questions for rental housing demand in the years to come. On a metro-by-metro basis — whether it be along the lines of WFH attractiveness, affordability, urban amenities, or taxes — competition for residents is poised to see an escalation in the years ahead.


All content is provided herein “as is” and neither Arbor Realty Trust, Inc. or Chandan Economics, LLC (“the Companies”) nor their affiliated or related entities, nor any person involved in the creation, production and distribution of the content make any warranties, express or implied. The Companies do not make any representations regarding the reliability, usefulness, completeness, accuracy, currency nor represent that use of any information provided herein would not infringe on other third party rights. The Companies shall not be liable for any direct, indirect or consequential damages to the reader or a third party arising from the use of the information contained herein.