Recent years have been what many have described as a housing affordability crisis. It’s become nearly impossible for people to find affordable entry-level homes, and there’s further pressure as rent prices have soared. Still, new apartment construction could mean at least a bit of relief on the horizon.

Multi-family Construction

Currently, there are a record number of multi-family housing units being constructed across the country, which will infuse much-needed apartments into the market. The housing shortfall is estimated to stand currently at around 1.5 million houses, so this is coming at a critical time.

A report recently from the National Association of Home Builders said there were currently around 943,000 multi-family housing units under construction. That’s more than the single-family homes being built. It’s also the highest number of multi-family units that’s been under construction at any one time since the 1970s.

It’s not all good news, though. Some say that this doesn’t necessarily mean the supply is finally catching up with demand, but rather that it shows the deep problems in the building industry. Such an enormous number of apartments are being produced right now because it’s happening at such a slow pace.

Why So Slow?

The reason the production pipeline for multi-family properties does appear to be moving at a snail’s pace is the pandemic and the ongoing supply chain issues it brought with it. There are also still labor shortages affecting the industry.

While it’s good that more communities are being built, rather than catching up with demand, it’s more that builders are trying to catch up with an existing backlog.

Less Rent Turnover

Some analysts feel like the rent prices aren’t going down, even with so many apartments in production, but others see a different perspective. The end of 2022 saw incredibly low renter turnover, and there was a near evaporation in demand for new leases because of inflation and a low sense of consumer confidence.

The net demand for apartments was negative for 2022, and the last time that happened was in 2009.

While 2021 saw record numbers of relocations and people moving all over the country, in 2022, it appears they opted to stay put.

When consumers lack confidence even when the employment market is strong, like it is now, they may decide to live with family or friends or find other ways to avoid making big moves, which come with a sense of uncertainty.

That would lead you to think maybe there’d be an increase in rent in 2023 because of pent-up demand, but that would require consumer confidence to be on the upswing, and that shows no signs of happening any time soon.

A Shifting Rental Market

New-lease apartments declined in December for the fourth month because of weak demand. Rent cuts during the winter are normal, but the cumulative drop since September of 1.6% is higher than normal.

This trend appears set to continue, especially if those apartments currently in production hit the market.

Many analysts see a rental market quickly shifting in favor of renters. In December, nationally, apartment vacancies went up from a seasonal record low of 2.5% the year before, the 5% in December 2022.

Vacancy increased in only two of the 150 largest metros in the country, and Midland/Odessa, TX, and Youngstown/OH were the only exceptions.

If 2023 does indeed see a supply surge, which is predicted to be the highest in forty years, these trends could continue.

There are around 575,5000 units that are scheduled to be completed this year.

The supply is expected to be especially focused on the upper-income rental market, the Class A market.

The overall takeaway is that 2023 could bring relief for renters, but there’s a lot still to be determined in the rental market and the overall housing market and economy.