Joshua Clements, AICP’s Post

Tight multifamily fundamentals in Milwaukee and Madison aren't positioned to let up any time soon. The two metros stand as some of the highest-occupancy markets in the country and demand for new supply relative to the pace of new supply additions has been among the strongest nationwide. In fact, Madison ranks as the top market in the country for what I would call a severe supply-demand imbalance. Across the country, it would take an estimated 2.9 years on average for renters to absorb new and under-construction inventory if nothing else were to break ground today. In Madison, that figure falls to just 1.3 years, with Milwaukee also outperforming the average at 2.7. Construction activity has fallen in Milwaukee and Madison by roughly 35% and 50% from peak levels two years ago, and based on the recent velocity of construction starts, this figure is set to fall further in the coming quarters. With recent rate cuts, we could see some relief on the borrowing side that could help put more shovels in the ground early next year, but there really needs to be a concerted effort across state, county, and local governments to dig us out of these holes. And this isn't just true in Milwaukee and Madison. There's a statewide housing shortage. As announced by Lafayette Crump at the BizTimes Media Commercial Real Estate and Development Conference a couple of weeks ago, I applaud the City of Milwaukee for pursuing the development of a program that would help fund the development of housing at 60-100% of AMI. In conversations I have with developers across the state, it's clear that new tools are needed to help facilitate development across a variety of housing types and price points. There is no one-size-fits-all solution, and we don't know yet what it'll look like, but this program could be a great step toward progress and addressing prohibitive funding gaps that have seen many developers to go pencils down in a segment that sorely needs it. Thoughts? Questions? Seeing something else in the market? Drop a comment 👇

First Quarter Multifamily Missing Middle Construction The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties. The multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has disappointed since the Great Recession. For the first quarter of 2023, there were just 43,000 2- to 4-unit housing unit construction starts. This is down 25% from a year prior. As a share of all multifamily production, 2- to 4-unit development was just above 6% of the total for the first quarter. In contrast, from 2000 to 2010, such home construction made up a little less than 11% of total multifamily construction. Construction of the missing middle has clearly lagged during the post-Great Recession period and will continue to do so without zoning reform focused on light-touch density.

San Antonio - Commercial Real Estate Multifamily construction sees early Q1 surge. 'At CoStar, we’ve got San Antonio being a double-digit vacancy market for the foreseeable future'. https://lnkd.in/gDmVVwj6

Multifamily Supply Wave Recedes as Construction Stages Retreat The multifamily housing market is currently oversupplied, though improving. In 2024, completions are expected to total 533,000 units, a 10% drop from 2023's 588,000 units. Despite this, Austin, Tampa, and San Antonio will see increased supply, likely raising vacancy rates and keeping rent growth negative. Construction activity has sharply declined, with units under construction dropping from 1.2 million in early 2023 to 860,000 by May 2024. New construction starts have also fallen significantly, from 210,000 units in early 2022 to 63,000 in early 2024. With multifamily developments taking about two years to complete, fewer starts now mean fewer available units in 2026, projected at just 250,000 completions. If demand remains steady, this could quickly shift the market from oversupply to undersupply, lowering vacancy rates and accelerating rent growth, with the market unable to respond quickly enough to the shortage.

Interesting insights from Carl Whitaker on the current state of multifamily construction! The data presented suggests that we might be closer to peak supply than anticipated. This observation, reminiscent of trends seen in 2010, coupled with a significant decrease in new starts, indicates a potential shift in the market. Exciting times ahead as we navigate through these dynamics!

This significant increase in multifamily units could bring much-needed balance to the market, potentially easing rent hikes and providing more options for renters across South Florida. It’s a positive shift that could benefit both renters and the overall housing market.

High Interest Rates, Construction Costs Are Serious Impediments for New Multifamily Development The Question I ask is how will this impact rental inventory over the next 36 months to support increased need of rentals with the slow down of homebuying https://lnkd.in/e6KtYC8m

U.S. multifamily housing is experiencing a significant pullback in new construction, even as the number of units that began construction in the past two years is expected to reach a 40-year high. While 675,000 units were added this year, construction starts on rental apartments, after peaking in the first quarter of 2022 at 211,000 units, have since plummeted 70% to just 65,000 units starting construction in the third quarter, reflecting a dramatic shift in market dynamics. https://lnkd.in/gk4yDZ2a

While the multifamily market digests the record-high completions of 2023 and 2024, a dramatic slowdown in the construction of new units has major implications for apartments projected to become available in the next two years. According to market participants, many equity capital sources for new development are remaining on the sideline over concerns that the investment returns between existing apartment project purchases and new ground-up development aren’t wide enough to justify the development risk. This has resulted in a further decline in the construction of new apartments this year. In the first quarter of 2024, starts declined 63% over the past 12 months to 67,000 and fell even further in the second quarter to 58,000 units, the lowest quarterly total since 2011. https://lnkd.in/gf65xieq

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