Multifamily Housing

• Deliveries are waning alongside sharply decelerating starts, while demand moderates amid slower job growth and reduced immigration. 

• The growing affordability gap is driving migration to smaller cities and prompting policymakers at all levels to devise strategies to deliver more housing.

• Multifamily remains a favored asset class for investors, but deal flow is limited by questions about whether its perceived stability justifies current low acquisition yields.

Going into 2025, expectations were for a transitional year for the multifamily sector. Dwindling starts created optimism that rents would pick up after two weak years, but it now appears that slow rental growth will extend into 2026 and possibly longer.

“Everyone thought that 2025 would be the year of recovery; now everyone is hoping that 2026 will be the year for that,” said the chief executive of a national apartment trade group. “Will there be a switch flipped where everything gets back to where it was a few years ago? Probably not; it will be a slow process.” 

That is not to say the multifamily outlook is bearish. Investors believe in multifamily’s long-term growth and stability—starts are plummeting during a long-term housing shortage—and have capital lined up for when the price is right. 

At the same time, the rising cost of housing continues to draw national attention to affordability and has spurred bipartisan action. The impacts of these efforts will be felt in the years ahead. Meanwhile, affordability plays a role in driving migration and property performance. Lower-cost tertiary markets will continue attracting households migrating from larger markets, contributing to higher rent increases. Rent growth has become a regional phenomenon driven by affordability and supply growth. Asking rents are increasing modestly in low-supply markets in the Northeast and Midwest and decreasing in many high-supply markets in the Sun Belt and West.

Multifamily dynamics are shifting. Demand and supply, both red-hot in recent years, are likely to continue slowing in 2026. “The supply/demand dynamic will be disappointing for the next few years,” said a chief economist at a private equity firm. “Anyone expecting a gangbusters recovery from the slowdown might find themselves a little disappointed.”

Supply

Multifamily starts dropped by more than 40 percent between 2023 and 2025 and are likely to remain weak due to the high cost of materials, persistently high interest rates, and worries about oversupply in the Sun Belt. Less new supply should provide an impetus for rents to grow again, depending on the market and whether demand holds up. The impact of a 40 percent drop in deliveries varies because supply growth has differed greatly by metro area. 

High-supply markets will eventually get some relief from fewer starts, but so many properties are still under construction in certain metro areas—including Orlando, Austin, Miami, Nashville, and Phoenix—where 4 to 5 percent will still be added to stock in 2026 and 2027. Deliveries are also dropping in some markets such as New York City and Chicago that have only added 1 to 2 percent to stock in recent years and are seriously undersupplied. With these varying dynamics, rent growth may be slow to return to Sun Belt markets as they absorb excess deliveries of the last few years, while rents could continue to grow in Northeastern and Midwest markets where new units will be in short supply.

Emerging Trends interviewees predict little change to these regional trends in 2026, with rent growth highest in areas with moderately strong demand but also less new supply. The consensus of interviewees is that top rent growth performers will include markets with weak supply growth (Chicago, Philadelphia, Detroit); demand from return-to-office policies (New York, San Francisco); or population growth driven by job growth and less expensive apartments (Columbus, Minneapolis, and Kansas City). 

Still, high-supply markets where weak rent growth will persist in 2026 and possibly into 2027 remain good long-term bets because of strong job and population gains. “Eventually markets like Phoenix will move into equilibrium,” said the head of research at a national brokerage. “Long term it’s a strong market, but short term there are headwinds.”

Demand

Some demand drivers will remain positive. Fewer renters are moving out to buy homes, since many first-time buyers cannot scrape together down payments or prefer to stay in apartments longer than past generations as marriage and childbearing get pushed to later in life. 

However, other sources of demand will be weaker. The immigration boom that saw 6 million newcomers over two years is over. With the domestic birth rate at long-term lows, “there’s a nonzero probability that the U.S. population contracts for the first time,” a chief economist at a private equity firm said, noting that markets with large immigrant communities would be most affected. 

Weakening consumer financial health may be another drag on multifamily housing demand. Job growth slowed in 2025. The economy added an average of 75,000 jobs per month in 2025 through August, down from 166,000 per month in 2024 and more than 300,000 per month over the previous four years, according to the Bureau of Labor Statistics. Consumer delinquencies on credit card debt have remained over 7.0 percent since 2023 while delinquencies on all consumer loans were 2.8 percent in Q2 2025, the highest level since 2012, according to the Federal Reserve. “There’s a change in the financial health of a significant portion of the renter base, which could inform the decisions of some renters,” said a senior industry researcher. 

Affordability has been a major driver of migration in recent decades from expensive primary metro areas to secondary markets in the Sun Belt and West, fueled in part by the search for housing within the means of middle-class families. The problem worsened after a post-COVID-19 burst of demand led asking rents to increase in 2021–2022 by an average of about 25 percent nationally, and even more in rapidly growing Sun Belt markets where population surged.

Some Emerging Trends interviewees said the growing cost of housing in secondary markets is now leading to a wave of migration to even less expensive markets. One noted growth in cities where college graduates are finding jobs in cities such as Birmingham, the Twin Cities, Raleigh, and Milwaukee. “A trend we expect in the next few years is that people will be looking for fringe markets that are more affordable,” said a researcher at a multifamily real estate investment trust. “Places like Columbus and Indianapolis are not exciting for investors, but they are driving decisions for households.” 

A researcher who tracks migration for a consulting firm has found that affordability is prompting growth in outer suburbs or satellite cities near larger metro areas. Examples of this type of move include Lakeland, Florida, from Tampa; Killeen, Texas, from Austin; Ocala, Florida, from Orlando; and Colorado Springs or Fort Collins from Denver.

Data confirms the point. Since the beginning of 2020, rapidly growing tertiary markets accounted for 80 percent of the top 25 metro areas in absorption as a percentage of stock, according to Yardi Matrix data. Among those top 25 markets are Boise (35.5 percent of stock), Lafayette, Louisiana (32.3 percent), Charleston (30.5 percent), Southwest Florida Coast (30.4 percent), Greenville, South Carolina (27.8 percent); Madison, Wisconsin (25.9 percent), and Huntsville, Alabama (25.5 percent). 

The interest in affordability has led to a bipartisan national push at all levels of government to make housing easier to build. The federal tax bill in 2025 contained a permanent 12 percent increase in 9 percent Low-Income Housing Tax Credits that will set funding at $14 billion per year. The bill also reduced the threshold for a 4 percent tax credit that is commonly used to preserve affordable housing and extended the Opportunity Zone program, which provides tax credits for developments in areas with low area median incomes. The program has been responsible for about 300,000 new apartments since its establishment in 2017.

Nearly two dozen states adopted policies to increase housing development in 2025, according to the National Council of State Housing Agencies (NCSHA). NCSHA reported that more than 400 pro-housing bills were introduced in state legislatures, and more than 100 were signed into law as of the fall, including in California, which passed legislation to streamline environmental reviews, speed up permitting and approvals, and increase financing for housing.

Taken together, strategies embedded in these efforts include tax abatements, facilitating adaptive reuse projects, zoning reform, opening government land to build housing, streamlining the permitting process, implementing by-right development, and creating a one-stop shopping process for housing applications. 

The United States has a 600,000-unit apartment shortage created by underbuilding in the wake of the global financial crisis, and needs to build 4.3 million units by 2035, according to the National Multifamily Housing Council and National Apartment Association. “One of the constructive things we are seeing in the political debate is the recognition that cities can’t have a housing crisis that makes them unaffordable places to live,” said an executive at a housing advocacy group. “The industry needs to ramp up its creativity to solve the crisis.”

While 2026 could be the year to break the logjam on transaction activity that has stalled since interest rates jumped in 2022, that is no sure bet. Much depends on the direction of the 10-year Treasury yield. “If rates drop substantially, to 4.0 percent or lower, we could see a dramatic increase in activity as cap rates recalibrate,” said the head of research at a national brokerage.

Transactions have concentrated in a few categories. One is stable properties bought by large institutional buyers who have access to cheap capital and use little or no leverage. Another is value-add properties purchased by investors who are betting on pushing rents higher. And distressed properties are being recapitalized by the legion of investors ready to supply bridge and mezzanine capital. 

The sticking point for property sales has been the slim premium over Treasury rates, creating a dance between sellers reluctant to sell at reduced prices and buyers trying to avoid negative leverage when mortgage rates are generally in the 5.5 to 6.0 percent range. Multifamily capitalization rates are 4.5 to 5.0 percent for most stable assets and about 6.0 percent for value-add properties, according to CBRE. That creates yield premiums well below historical levels of 200–300 basis points. 

Some interviewees believe thin yields are justified and likely to persist, contending that multifamily performance risk will be diminished over the next few years due to robust renter demand and the housing shortage. Such optimism may be justified, but it puts the market in a precarious position in the event of a downturn or slower-than-expected growth over the next few years. Baking bullish forecasts into acquisitions has often triggered larger problems in down cycles. Even so, optimists contend that risk is reduced due to the large amount of dry powder waiting for the opportune moment to pounce. 

“Investors are making a bet that multifamily is a stable asset, and they’ll take a slightly lower yield for the stability of the principal,” said an executive at an industry trade group. “As an investment, institutional investors believe multifamily is head and shoulders above other property types.”

Supporting this view is the very liquid commercial mortgage segment, boosted by a resurgent commercial mortgage-backed securities market and growing private equity lending while traditional banks and life companies remain active. Multifamily’s biggest lenders, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, are also expected to maintain market share, despite a likely overhaul in 2026 as the Trump administration floats plans to sell public shares and remove them from conservatorship. 

While details of the overhaul remained unclear into the fall, most mortgage executives believe the changes will not jeopardize the GSEs’ core lending functions and the implicit government guarantee that is the key to their operation. Change, however, comes with risk. “The net positive if GSEs go private is [that] nothing happens,” said an affordable housing executive. “The net negative is something goes horribly wrong.”

The prospect for the multifamily sector in 2026 is one of low growth but stability. There is risk to the outlook if the economy sinks into stagflation or if operating expenses return to pandemic-era inflation, but the downside is limited by strong demand and underbuilding in many metro areas. As an investment, the worst-case scenario is a continuation of weak deal flow and a mild uptick in acquisition yields, while the upside is lower interest rates and a rebound in activity.

“Current trade and immigration policies come with significant risk, and if I was investing, I would worry,” said an executive at a national brokerage. “That said, multifamily supply and demand metrics generally appear favorable.”