An Inflection Point for Boston Multifamily - Looking Back to 2023 and Forward to 2024

Last year was a challenging year for all asset classes, including multifamily. The heady days of easy money and explosive growth gave way to a sobering reality of rising interest rates, capital constraints, inflation, high construction costs, and economic uncertainty, driving transaction volume and deal flow to decade lows. Let’s peer through the fog to what might lie ahead.

Navigating the New Normal | This year promises to be an inflection point in the Boston multifamily market. Navigating the new normal will require an eye for opportunity, prudent investment strategies, and a willingness to embrace change. Those who can ride the wave of shifting demand drivers and adapt to the evolving landscape are best positioned to succeed in 2024.

Housing Crunch Deepening | Affordability woes that impact the region’s overall economic competitiveness will continue due to the shrinking multifamily development pipeline (down 20%) and increasing rents ($3+/SF) along with home ownership out of reach for many first-time buyers.

Selective Investment | With more rigorous financing requirements, especially after bank failures, investors will adopt a more discerning approach, favoring opportunistic and value-add investments which exhibit strong fundamentals. We may begin to finally see some distress in multifamily development projects approved but not started.

Construction Crossroads | The construction pipeline shrunk amidst high costs and financing hurdles. Developers will wait for clarity around pricing and lower interest rates before resuming large-scale projects. Adapting to shifting demand drivers, like affordable and workforce housing presents an opportunity with the right policy changes and incentives. Look for The Commonwealth Momentum Fund and Housing Development Incentive Program and Boston’s Future Deckers Initiative to start to have an impact.

Public Policy Response | Potential tax breaks for residential conversion in Boston showcase efforts to address the housing crisis, but initial interest is limited to 104,000 SF of office converting to 170 apartments. Governor Healey’s $4.1B Bond Bill will have a significant impact on affordable and mixed income production in the next few years, especially in Gateway Cities. The MBTA Communities Act, which requires all communities served by the MBTA to allow for multifamily housing as of right, made headway with the 12 rapid transit communities (Braintree, Newton, Brookline, Quincy, Somerville, Medford, Cambridge, Everett, Milton, Chelsea, Lexington, and Revere) approving by-right zoning in compliance with the new law.

Tech Takes the Helm | While life science cools, clean energy and “tough tech” emerge as potential new economic drivers for real estate, particularly with the Inflation Reduction Act.

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