The battle of housing demand versus affordability

By Erik Sherman

June 25, 2024 at 1:47 p.m

“Cracks are forming beneath the surface,” says Cushman & Wakefield.

Cushman & Wakefield recently released its mid-year housing outlook, and the news is complicated.

The firm said “strong demand across various housing sectors continues to fuel growth.” But that’s only half the story, as “continued persistent inflation and continued moderation in overall economic and labor conditions are affecting affordability.”

“Cracks are forming beneath the surface as consumers and businesses remain under pressure from the cumulative effects of higher interest rates and inflation,” Cushman & Wakefield deputy chief economist and global head of forecasting Rebecca Rockey said in prepared remarks.

Strong construction inflows and added multifamily inventory helped increase the vacancy rate from 5.1 percent in mid-2021 to 8.7 percent in the first quarter of 2024. “Our baseline forecast calls for a vacancy to reaching 8.9% at the end of this year, before adjusting to 8.3% in 2025 and 7.3% in 2026,” they wrote.

Market conditions and financing difficulties are slowing multifamily growth. Building permits in the first quarter of 2024 are down 38% from the peak of the pandemic. The record number of new units brought online in 2023 is expected to halve in 2024, as GlobeSt.com previously reported. However, the roughly 400,000 units in 2024 should be halved in 2025.

“While it will take several quarters for these new units to be leased, demand is clearly on a solid trajectory as evidenced by the first quarter, where the 85,900 units taken up were the strongest in two and a half years and the second largest. Total recorded in the first quarter,” said Sam Tenenbaum, head of Americas Multifamily Insights at Cushman.

Tenenbaum also noted that rental construction has “outpaced nationally” as 40- to 49-year-olds will increase 10 percent by the end of the decade and the cost of buying a home is driving demand for the BTR market segment .

The firm also says the student population is forecast to approach 20 million by the end of the 2020s. top, which far outpaced a reduced development pipeline with about a 40% drop in current and projected shipments over the previous one. five-year average,” says Travis Prince, Cushman & Wakefield executive director of student housing capital markets.

Finally, housing for the elderly is of increasing importance, as the number of people over 75 will increase by half within a dozen years. “Occupancies have fully recovered from pre-pandemic levels, and rent growth remains strong in nearly all U.S. markets,” said Zach Bowyer, executive director and head of residential sectors. The country will need an additional 35,000 to 45,000 units of new supply annually by 2045. The current pace is 25,000.