There are currently more multifamily units under construction than there have been since 1970. That’s more than half a century for those who are counting. Obviously, tremendous rent growth, backed by a national housing shortage, has greatly encouraged a large build. And while that build may still come up short of demand given the birth rate, it does have a short-term effect on rents.
Rents also ebb and flow with the seasons. Typically, what happens is that rent growth builds over the early part of the year into late spring and early summer, and then it falls off as the year continues.
As we think about rental markets in general, there are two things in particular that we like to look for in this chart. First is, of course, the magnitude of change. 2021 for example, saw huge rent increases through the summer, and we believe this is a harbinger of what is to come. This was obviously a bumper year, and not only is it difficult to repeat, but it also might have a residual effect on landlord assumptions that hurt the market going forward. The other thing we look at, is the time of year that growth changes to contraction and vice versa. Most often, this happens in September; this year, it happened in August, so a month earlier than last year. That said, last year saw significant rent contraction in the back half. We’ve mentioned pieces and parts of this before, but the combination of new inventory, difficult year-over-year comparisons, bank tightening, and general economic uncertainty should lead to greater negative rent growth this year.
While no one wants to see contraction in their space, the market has simply been too hot the last several years. This contraction will ultimately be healthy for the market. The sooner it comes, the better.