As we venture into 2024, the multifamily housing sector in the United States is on the cusp of a significant shift. After a record-breaking completion of 590,000 units in 2023, a 25% reduction in new developments is anticipated for 2024, according to CoStar data. This trend suggests a pivotal moment for the market, with the potential to achieve a more balanced state between supply and demand.
In 2023, the market experienced a 40-year peak, with approximately 590,000 units reaching completion. However, projections for 2024 paint a different picture, forecasting only 444,000 units to come online. This decrease, while still surpassing the pre-pandemic five-year average of 360,000 units, is expected to be a welcome development for property owners and managers. It represents a potential easing from the oversupply that has characterized recent years, where construction outstripped demand by 607,000 units, causing the national vacancy rate to surge from 4.8% to 7.6%.
A key indicator of market health, absorption, which measures the net change in occupied units, has shown an uptick throughout 2023. If this trend continues into 2024 alongside the projected slowdown in new construction, the multifamily sector could move closer to an equilibrium state.
Dallas-Fort Worth is projected to lead the nation in multifamily completions for the second consecutive year, with over 27,000 new units. However, the broader story lies in the Sun Belt markets, where supply remains high in areas like Atlanta, Austin, Charlotte, and Phoenix, despite a general decline in new units. These markets, already grappling with double-digit vacancy rates, continue to face challenges in absorbing the influx of new units.
Contrastingly, major markets like Los Angeles and Chicago, with populations nearing 10 million, are expected to add fewer than 8,000 units each in 2024. These cities, with vacancy rates below the national average, demonstrate a different dynamic in the multifamily landscape.
The Sun Belt region, particularly Charlotte, North Carolina, leads in terms of inventory growth, with expected expansions three times the national rate. However, this growth is not uniform across the country. The Midwest and West Coast, with lower construction rates, might be better positioned to capitalize on the expected increase in multifamily demand, potentially driving higher rent growth in these regions.
As we approach 2024, the national multifamily market seems poised for a period of recalibration. While the anticipated slowdown in new constructions offers a chance for the market to stabilize, not all regions will benefit equally. Areas with ongoing elevated construction levels might find their rent growth prospects limited, underscoring the varied landscape of the multifamily housing market across the United States.
Source: CoStar, MMCG
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