In this market update, we will cover the following:

• The surge of apartment deliveries in 2024.
• The current rent growth outperformance of previously slow growth markets.
• The affordability of renting versus home ownership.
• The benefits of renting for today’s mobile workforce.
• An update on the revenue management litigation.
• An update on rent control legislation.

2024 – The Year of the Apartment Deliveries

The year 2024 marked a significant period for the delivery and absorption of multifamily units. Rent growth, which had surged during the pandemic, peaked in the second quarter of 2021 with an annualized net effective rent growth rate exceeding 17%. At the same time, the 10-year U.S. Treasury yield hovered around 1.5%, creating a favorable environment for multifamily developers to ramp up activity and drive new supply, particularly in the Southeast, the fastest-growing region in the U.S. By early 2022, quarterly annualized multifamily starts surpassed 800,000 units, resulting in a flood of new apartment inventory hitting the market in subsequent years.

The surge in new multifamily starts led to a wave of multifamily unit deliveries in 2024. Despite this significant influx, rent growth remained positive throughout the year, albeit at more modest rates. Over the long term, supply and demand dynamics continue to strongly favor apartment owners, as the U.S. has faced roughly 35 years of constrained multifamily supply following the 1986 tax reforms that eliminated key federal income tax incentives for development. While the current supply boom is noteworthy, it is already showing signs of being short-lived and is unlikely to significantly alleviate the long-standing supply-demand imbalance. For example, multifamily housing starts in October 2024 dropped to their lowest level for any October in 12 years. Looking ahead, forecasts indicate that rent growth will strengthen again in 2025 as multifamily deliveries decline due to rising building costs and higher interest rates.

Slow Growth Markets Outperformed High Growth Markets in 2024

In 2024, rent growth varied significantly across the country. Slower-growing markets outperformed traditionally high-growth cities, as multifamily developers focused on high-growth areas, anticipating better long-term returns from sales to investors targeting future growth. Midwestern cities such as Detroit, Kansas City, and Chicago experienced annual effective rent growth exceeding 3.0%, driven by limited new apartment deliveries in these markets. Conversely, faster-growing cities like Austin and many high-supply areas in the West and South saw flat or declining rents, as developers flooded these regions with hundreds of thousands of new units to capitalize on rapid population growth. Despite regional challenges—especially in markets with a surge in new inventory—the broader U.S. apartment sector remains resilient, with stable occupancy levels and sufficient demand in many areas to prevent steep rent declines.

All markets in United States. Source: CoStar.

Renting an Apartment Now Far More Affordable than Buying a Home

The ongoing demand for apartments is also fueled by the growing disparity between the monthly costs of renting and buying, which has reached historic highs. According to John Burns Research and Consulting, this trend is expected to persist for years. The premium to buy versus rent entry-level single-family homes has remained above $800 since 2022, reflecting this sharp divide. Historically, the gap between renting and buying has fluctuated, with periods such as the early 2010s where buying was more affordable than renting. However, the current affordability gap highlights a key shift in today’s housing market: while new homebuyer costs have surged dramatically, rent growth has remained comparatively modest. This has made renting apartments an increasingly attractive and essential alternative to homeownership. Projections suggest this trend will continue through at least 2027, emphasizing the critical role of rentals in addressing the affordability challenges faced by potential homebuyers.

Source: John Burns Research & Consulting and Madera Residential Research. The data reflects the discount for renting entry-level single-family homes compared to the all-in monthly costs for new homebuyers (including monthly payments and maintenance).

Rental costs for single-family homes can serve as an approximate proxy for multifamily units because both reflect local market demand and supply dynamics for residential rentals, despite differences in target demographics; single-family rental data is particularly useful for comparing rental costs to single-family home purchases.

The rising cost of homeownership compared to renting has significantly increased the ranks of renters in the U.S., with renter households growing three times faster than homeowner households in the past year. In the third quarter of 2024, renter households surged by 2.7%, adding 1.18 million new renters, while homeowner households increased by just 0.9%. With younger generations increasingly prioritizing renting over buying due to a combination of rising home prices, elevated mortgage rates, and shifting lifestyle preferences, such as a desire for greater flexibility, freedom from maintenance responsibilities, and a preference for experiences over material assets, rentership rates may climb even higher as these trends reflect deeply ingrained values and practical considerations unique to Millennials and Gen Z.

Renting Apartments Empowers Today’s Workforce

In addition to being more affordable than owning a home, multifamily housing provides substantial benefits to renters in an economy increasingly dependent on a mobile workforce. While remote work has enabled some professionals to work from anywhere, the vast majority of jobs still require employees to be present in specific cities or regions. As of October 2024, only 13% of U.S. employees worked exclusively from home, while 28% engaged in hybrid arrangements combining remote and in-office work. This means that 87% of the workforce still has some on-site requirements. Renting allows individuals the flexibility to relocate for these opportunities without the financial and logistical burdens of selling a home.

Geographic mobility is essential in today’s dynamic labor market, where industries and job opportunities evolve rapidly, often necessitating relocation to areas experiencing economic growth. Multifamily housing supports this need by offering accessible, adaptable living options that enable renters to maintain financial flexibility while pursuing career advancement. For a workforce balancing remote flexibility with in-office commitments, multifamily housing provides a practical and efficient solution, empowering workers to align their living arrangements with their career goals.

Additionally, multifamily properties cater to the lifestyle preferences of a mobile workforce. Modern apartment communities often feature amenities such as coworking spaces, fitness centers, and convenient access to urban hubs, making them ideal for professionals seeking both convenience and connectivity. These features not only enhance the appeal of renting but also support a work-life balance that is increasingly valued by today’s workforce. By addressing the unique needs of mobile professionals, multifamily housing fosters an agile and adaptable workforce, which is critical for sustaining economic growth and innovation in a competitive global economy.

Government Scrutiny of Multifamily Revenue Management Software Brushed Back

During the COVID-19 pandemic, the multifamily housing industry came under heightened scrutiny as rents surged nationwide. In August 2024, the U.S. Department of Justice, in collaboration with eight state attorneys general, filed a civil antitrust lawsuit against RealPage, a leading property management software provider. The government alleged that RealPage’s revenue management platform enabled property owners to coordinate pricing decisions unlawfully, diminishing competition and inflating rents for millions of renters. These revenue management systems, common in the multifamily industry, typically analyze a range of factors—such as historical pricing, market demand, occupancy rates, and competitor rents—to generate data-driven recommendations on rental pricing. While RealPage contends that its software, which operates similarly to models used in industries like aviation, hospitality, and automotive rentals, adheres to all legal standards and improves market efficiency, critics argue that this data sharing can lead to coordinated price hikes.

In December 2024, RealPage announced that the DOJ had concluded its criminal investigation without filing charges; however, the ongoing civil antitrust case remains unresolved. RealPage continues to defend its technology, maintaining that it enhances transparency, allows landlords to retain ultimate discretion over rents, and ultimately serves both property owners and tenants through more informed decision-making. Despite the ongoing civil litigation, the DOJ’s decision to discontinue its criminal investigation—a more stringent test of wrongdoing—suggests that the multifamily industry’s fundamental practices, and use of revenue management software, are unlikely to face drastic regulatory changes or market disruptions.

Multifamily Rent Control Efforts Soundly Defeated Throughout the Year

The strong rental growth rates during the pandemic also spurred a push for stricter rent controls. However, in November 2024, California voters decisively rejected these efforts. A third attempt to loosen restrictions on rent control laws in the state failed, sending a strong message not only to other progressive regions but also to moderate and conservative states weighing similar measures. Despite robust campaigns for Proposition 33, the rent control initiative was soundly defeated by 60% of voters, reflecting widespread skepticism. Editorial boards of major newspapers—including the Los Angeles Times, San Diego Union-Tribune, San Francisco Chronicle, and Sacramento Bee—argued the measure would worsen California’s housing crisis. This outcome aligns with extensive economic research, which highlights the long-term pitfalls of rent regulation and its tendency to undermine affordability rather than enhance it.

In sharp contrast to some Northeastern and Western states, many of which have historically exhibited stronger tendencies toward anti-competitive practices in the multifamily housing industry, Florida last year doubled down on its pro-landlord policies by passing legislation that preempts local governments from enacting tenant protection measures, including rent control. The Live Local Act (SB 102), signed into law by Florida’s governor, prohibits municipalities from adopting rent control ordinances, even during housing emergencies. Additionally, HB 1417 preempts local regulations concerning tenant screenings, security deposits, and rental agreement terms, centralizing authority at the state level and limiting local efforts to enhance tenant protections. These legislative actions underscore how more business-friendly states preemptively move to protect multifamily property owners from rent control measures.

Meanwhile, at the federal level, the idea floated by the White House in July 2024 of imposing national rent caps ignited immediate and substantial bipartisan pushback. President Biden’s proposal—which would have compelled large corporate landlords to cap rent increases or face the loss of certain tax benefits—drew strong criticism from both Democratic and Republican economists, as well as housing experts. They argued that such policies discourage the construction of new housing, degrade the quality of existing units, and fail to meaningfully address affordability pressures. Prominent voices, including former Obama administration officials, leading economic thinkers, and influential commentators, contended that encouraging more robust housing production is far more effective than placing top-down limits on rent. Public polls reflect this broad consensus, reinforcing the prevailing view that federal rent control would reduce the availability of new apartments and ultimately do little to improve long-term affordability.

About Providence Real Estate

Since 1985, Providence and its affiliates have actively operated as owner-operators of multifamily residential communities. Its principals have acquired over 65,000 apartment units, worth over $7.5 billion. Providence comprises an experienced team of professionals dedicated to searching for, identifying, acquiring, renovating, and operating multifamily properties in select U.S. markets. As a fully integrated real estate organization, Providence includes divisions for Property, Asset, and Construction Management; Acquisitions; Accounting; Information Technology; Human Resources; and Business Development. To learn more please visit https://www.provre.com.

DISCLAIMER

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