In our recent webinar, "From Surviving to Thriving: The Future of the Multifamily Housing Market," Jon Zelinsky, Executive Vice President, Corporate Strategy of Milrose Consultants, moderated a discussion with expert panelists Dallas Cothrum, President, Masterplan, a Milrose Company, and Kimberly Byrum, Managing Principal, Multifamily, Zonda Advisory. Together, they explored how regulatory changes are having a growing impact on multifamily projects, particularly in select growth markets. Here are the key insights from the webinar that will help you identify growth prospects and formulate timely strategies to capitalize on market opportunities.

Market Challenges and Historical Perspective

Understanding Market Trends:

Kimberly Byrum opened the discussion by reviewing multifamily market trends dating back to 2002. One of the key questions developers ask is, “When did deliveries stop, and when should I deliver to avoid oversupply?”

Byrum explained that from 2012 to 2019, deliveries hovered around 50% of units under construction, with around 300,000 units delivered annually. During the pandemic, this fell to 30%. As of Q2 2024, deliveries surged past 500,000 units but are expected to drop below the pre-pandemic benchmark by early 2027. “The current surge reflects a mix of preexisting construction and new projects entering the market,” Byrum noted.

Delivering into the Gap: Timing Is Critical

The Importance of Acting Now:

Cothrum joined the discussion and offered insight on how today’s pre-development efforts will set the stage for delivering into the gap. “People waited too long to fill the gap,” he said. “The first movers were the big winners during the recession.” He continued by pointing out that if developers are starting a project now, they are delivering at the right time. “To deliver into the gap, you need a one-year pre-development time period, plus construction time. Now is a good time to start feeling more optimistic.” 

Occupancy and Absorption Rates: Soft Landing Expected

Future Projections:

Byrum addressed occupancy of the multifamily housing market and said the market can expect a “soft landing.” She explained during the Macro Stable Period—between 2012 and 2019—occupancy was at 94.5 percent. “This was a great time. At the end of 2019, people were asking, ‘Where do we go from here?’” In 2021—the peak of the pandemic—occupancy surged to 97.4 percent with renewal rates at an all-time high. Since then, the market normalized to 94.2 percent as a result of the government enacting measures to combat inflation. “The market is expected to fall over the next two years, dipping to 93.5 by 2026,” Byrum stated. “We can expect this dip due to the pipeline and softening in the labor market. Beyond 2026, there’s a question mark as to where the numbers will go due to the uncertainty of the pipeline.”  

U. S. Change in Asking Rent Growth (%)​

Source:  RealPage (Historical), Zonda Advisory (Forecast)​

Rent Growth: Adjustments Expected

Rent Price Projections:

When it comes to the “sticker price” on rent in the multifamily market, our experts agreed that the rate of change has decreased dramatically since last year. In 2021, average rent prices were up by 14.9 percent—along with the cost of food and household goods. “We are expecting the asking price of rents to fall as the pipeline is coming into the market,” Cothrum said. “It’s a balance of what is being delivered and what is being absorbed.” Among the market watch list of 20 U.S. cities, Dallas is at the top with very strong absorption. “There’s a lot of competition,” Cothrum said. “Asking rents are adjusting downward as new products are being absorbed into the markets.” 

Generational Shifts in Homeownership

Millennials and Multifamily Demand:

As of 2023, Millennials represent 29 percent of the working-aged population, with 50 percent of them occupying rental housing. Cothrum stated that for Millennials, the American dream is different today than it was years ago. “The reality is that the oldest Millennials are approaching 40-years-old and only 60 percent of them have reached homeowner status, compared to 68 percent of Baby Boomers and the Gen X generations, and 74 percent of the Silent generation,” he said. “In 2010, first-time home buyers were 50 percent of the market. Today, that number stands at 26 percent, with the average age of first-time home buyers at 35.” Cothrum noted that generational change is a strong driver in real estate, as these numbers represent a true sign of the times in the multifamily market.

The Texas “Laboratory” – A Unique Growth Opportunity

A Hotbed for Development:

Cothrum was proud to say the numbers are strong in his home state of Texas. “There’s rapid change in Texas,” he stated. “From 2007 to 2015, Texas gained 1.4 million residents and gained 55 Fortune 500 companies—the highest rate in the country.” He continued by saying that by 2050, Texas will be the most populous state—and by 2100 Dallas/Fort Worth will rank as the largest metropolitan area. Other cities, unfortunately, are grappling to find more revenue. “With a lack of COVID-19 money, flat sales tax and waning property tax, cities are trying to find $30 million-to-$100 million projects that can provide housing options, affordability, and an additional tax base.”

Milrose’s Expertise in Navigating Municipal Approvals

Streamlining Complex Processes:

When asked about project timelines, Cothrum stressed that they vary greatly by jurisdiction. However, Milrose Consultants offers national resources combined with deep local expertise, enabling clients to navigate these complexities efficiently. “We’re the only company in the nation that can manage the entire approval process simultaneously,” said Cothrum, citing Milrose’s track record of success in zoning, permits, and predevelopment consulting.

Case Study:

One example is Toll Brothers’ Aster, a 22-story luxury multifamily development in Dallas’ Turtle Creek neighborhood. where Masterplan, a Milrose Company, provided landscape and development plans and successfully rezoned the property to create a specialized multifamily zoning district. This project, one of the first under Dallas’ new affordable housing policy, highlights how Milrose and Masterplan expertly navigate complex zoning and permitting challenges, delivering successful results in the highly competitive multifamily sector. 

For a deeper look into how we helped Toll Brothers bring their vision to life, check out the full case study here. The Latest Luxury High-Rise Development in Dallas (masterplantexas.com)  

Partnering with Milrose 

Finding the right partner who understands your unique challenges is essential. At Milrose, we not only have the experts to get the job done, but we offer a comprehensive suite of essential services that provide what you need, when you need it.