U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them.
Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average.Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions.
What's driving the demand boom?
1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button.
2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up.That's why supply and demand tend to be correlated, and that's happening again in 2024.
3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels.
4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too.
Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025?
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