2024 Rental Forecast: Supply Up, Slower Rent Growth
Researchers from Apartment List predict rent growth will be in single digits. Sun Belt States’ supply increase will moderate the rate of rental increases.
NEW YORK – Apartment List researchers predict that 2024 will be the strongest year for new apartment construction in decades – and that renters will have more options and better opportunities to negotiate price and lease terms.
1 – 2024 will bring the most new apartments in decades
Construction data from the Census Bureau suggests that multifamily supply growth should remain strong through 2024. The number of new multifamily apartment units under construction hit one million for the first time ever in 2023, and completions are expected to peak in 2024.
With so many units in the construction pipeline, 2024 should be the strongest year for new multifamily supply since the 1980s.
That said, the supply surge won’t be indefinite. Developers are already responding to the higher interest rate environment that we’re in now; new building permits have been falling for over a year and construction starts are following suit. But because of the lengthy development cycle of multifamily projects, this slowdown won’t be reflected in apartment completions until 2025.
2 – Low single-digit rent growth in 2024
2023 is set to have the second slowest rent growth of any year in the history of our estimates (going back to 2017), coming ahead of only 2020. Looking ahead to 2024, we expect demand to bounce back slightly, but remain on the soft side. The labor market remains fairly strong and there is likely some pent-up demand for new household formation. However, affordability continues to be a major concern and sentiment data shows that Americans still lack confidence in the economy.
Even in the most bullish scenario, it’s unlikely that demand will be strong enough to outstrip all of the new supply that we know is coming, likely resulting in our vacancy index rising modestly from its current level in 2024. We expect that rent growth will rise out of negative territory early next year, but that it won’t get above the low single digits in 2024.
3 – Changing rent vs. buy math will create more long-term renters
Multifamily demand likely won’t boom next year, but systemic barriers to homeownership will persist as a tailwind supporting rental demand. The combination of record-high prices and spiking mortgage rates has caused existing home sales to grind to a standstill. Few prospective buyers can afford to buy in today’s market, and current owners who are locked into low mortgage rates don’t want to sell. As a result, many families are remaining renters longer than they may have in the past.
Even those who can afford to buy in today’s market may find that renting now actually makes more financial sense. Although most Americans still aspire to own homes, more are now finding themselves renting later in life, and that trend is likely to continue. Consensus expectations are that mortgage rates will ease modestly next year, but likely not enough to significantly alter the prevailing dynamics of the for-sale market. As paths to homeownership fade for many, renting will increasingly be seen as the more practical housing option.
4 – Hybrid work will cement itself as the new norm
In 2023, the remote work narrative focused on return-to-office plans, but this focus obscures the fact the pendulum will never swing fully back to the pre-pandemic norm. According to the latest estimates, 28% of all work days are still from home, and that figure appears to be stabilizing at that level. 42% of American workers currently have some form of remote work flexibility, and hybrid arrangements are much more common than fully remote ones.
Hybrid workers present an opportunity for operators to meet new needs of high-earning and highly mobile renters. With many homes continuing to serve double duty as workplaces, renters will have an increasing demand for spare bedrooms and shared workspaces within multifamily communities. Communities that lie farther from major job centers may also see growing demand, as renters are willing to bear longer commutes when those commutes are occurring less frequently.
5 – Sun Belt markets will see more renters, not necessarily higher rents
The nation’s fastest population growth in recent years has been taking place throughout the Sun Belt. Major markets in Texas and Florida in particular have seen their populations swell. In some cases, this has led to corresponding spikes in rent prices – the Miami, Tampa, and Orlando metros, for example, have all seen rents increase by 30% or more over the past three years. But in many cases, Sun Belt markets have also been among the most accommodating of growth, allowing for new housing development to meet the growing demand.
From 2020 to 2023, the Austin metro has permitted by far the most new housing units per-capita, and the top 10 is dominated by Sun Belt metros, especially those in Texas, Florida, and North Carolina. In 2024, many of the projects that were permitted in recent years will reach completion, adding significant new housing supply to these markets. We expect that these units will largely get absorbed. The Sun Belt region is poised to see ongoing strong demand, particularly as millennials continue to age into a phase of life where they seek out areas that offer more space and more accessible homeownership opportunities.
But in the past, rapid population growth has brought with it rising rents, and the latter should be offset in 2024 by new supply. This has already started to play out in Austin, where rent prices are falling at the fastest pace in the nation, even as the population continues to grow.
6 – In the presidential election, candidates need to speak to housing concerns
As we head into a presidential election year, the question of whether the economy is good or bad has proven to be surprisingly complicated. Most of the key indicators of economic health are looking quite strong, but economic sentiment surveys show that confidence and satisfaction in the economy remain weak. It’s likely that at least some of this disconnect is being driven by waning housing affordability. Even as inflation abates and wages rise, a growing share of renters are burdened by their housing costs, and homeownership – which has long been the primary engine of wealth creation for American households – feels increasingly out of reach.
7 – More renters will use AI in their searches
2023 will likely be remembered as the year when generative AI went mainstream, with ChatGPT and related technologies making ubiquitous headlines. In the rental market, these tools have already dramatically changed the way property managers operate, advertise and communicate with renters.
While these technologies will continue to develop, we expect 2024 to bring a new wave of AI-powered tools specifically for renters. It will soon become commonplace for renters to use AI in their apartment searches to search, compare and coordinate actions. It will take time for these advancements to change macro market dynamics, but the next high-demand rental market cycle may look quite different with new power in renter’s pockets. And as adoption of AI-enabled rental search tools accelerates into 2024, both renters and property managers can seize opportunities from this new technological frontier.
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