Viewpoints
What is the impact for multifamily owners and renters for 2024 and beyond?
By: Valerie M. Sargent, Broadband Communities
This year I’ve taken on a fun new endeavor. I was contracted to host season three of the “Open Door” podcast by Cox Communities. While I have been a guest on many podcasts, I must say that I am truly enjoying sitting in the host chair!
The show focuses on bringing the latest information, hottest trends, and newest technologies for multifamily communities, and I have been having such amazing conversations with my guests! I recognize that the information is so relevant to our audience here at Broadband Communities, and thought it would be great if I could summarize some of my key takeaways so you could also benefit from the information with a quick read (and of course, feel free to give it a listen on your next drive if you’d like to hear the conversation in its entirety … I hope you will find that I am a charming and likeable host).
The podcasts primarily feature a guest who is a leader in the multifamily industry, and topics vary across all things tech and beyond, but we started with the economy. News flash: I am not an economist! But I truly loved the discussion I had on the current economic outlook for 2024 and the impact it’s having on the multifamily industry. I was fascinated with Jonathan Smoke, the Chief Economist at Cox, and I was encouraged for this year by our conversation. Here are a few highlights that captured my attention.
The resilience and unpredictability of the economy
Jonathan and I discussed the unpredictability of the economy over the past few years. Despite numerous predictions of a looming recession, it never really materialized. He attributes this resilience to a strong labor market and steady consumer spending, highlighting how these factors have shielded us from an economic downturn even amid the recent rising interest rates.
When we talked about the impact of inflation, Jonathan noted how it peaked in June 2022 and has since been declining. However, it was so eye opening when he pointed out the ways in which lower-income households have been disproportionately affected in the way they experience significantly higher inflation rates compared to high-income households. This disparity has underscored the importance of considering income variations when assessing economic conditions.
Wage growth has been robust, especially for hourly workers. But while inflation initially outpaced wage growth, the trend has now reversed, leading to an overall improvement in financial conditions for many households. Looking ahead, Jonathan said he remains optimistic, suggesting we actually do seem to be experiencing a “soft landing” or possibly even “no landing,” implying continued stable economic growth without a significant slowdown.
What about these high interest rates?
When I highlighted how high interest rates are affecting consumers, particularly those buying cars and managing credit card debt, Jonathan pointed out that the rates for car loans have reached a 24-year high, making it challenging for consumers to afford vehicle purchases. This, coupled with increased credit card interest rates, reduces disposable income and consumer spending power. This has significantly impacted affordability for renters.
Jonathan also noted that the rising interest rates contradict earlier expectations of a decline. This has particularly affected consumers looking to finance major purchases like cars and houses or pay increased rents. High interest rates have slowed down economic activities, particularly in housing. Mortgage rates have risen significantly, leading to reduced affordability and locking up the existing market, which has also delayed some planned multifamily development.
Insurance challenges abound and are a larger issue
Insurance challenges are affecting both individuals and businesses across the nation, especially in states like California and Florida that have dealt with frequent natural disasters like fires and hurricanes. Jonathan indicated that auto insurance rates were up 21 percent year-over-year, significantly affecting renter household budgets. We talked about the broader implications of these insurance cost increases on the housing market and consumer affordability. In the property market, insurance costs have similarly risen by about 20 percent, increasing rental rates as multifamily owners have to pass on these costs on in turn to their residents.
Renters, as well as owners, are all feeling similarly squeezed with these rising rates. Jonathan hopes these rates will peak and eventually decrease, but also emphasized the need for regulatory changes to address systemic issues in the insurance market.
How is government policy impacting affordable housing?
High interest rates have ironically slowed new construction, exacerbating the existing housing shortage. Zoning laws and nimbyism continue to hinder the development of affordable housing, but there are potential solutions, such as encouraging low-income tax credits, and making zoning adjustments to promote density. Jonathan stressed the importance of state and local governments in implementing these changes, as they have the most direct impact on housing development.
Looking to the future
Renters, often from lower-income groups, face worse inflation impacts as they spend a larger portion of their income on essentials like housing, food, and energy. We do see some positive trends though. With rents starting to stabilize and energy prices not increasing, renters might see some relief. The strong labor market also favors renters, as businesses continue to compete for workers. Encouraging more young people to enter trades and boosting construction jobs could help balance the market. Jonathan remains optimistic about future positive trends in the rental market.
Will the Presidential Election impact the economy? The recent debate reminds us to look at how an election year might affect the economy. While not overly concerned about the immediate impact of the 2024 presidential election on the economy this year, Jonathan did express concern about 2025 due to upcoming fiscal challenges like the debt ceiling and expiring tax policies. He emphasized the importance of establishing stable fiscal and monetary conditions to keep the economy healthy and maintain low interest rates, which would encourage investment and housing affordability.
There are some challenges for younger generations. Younger people, often with lower incomes and high student debt, face significant economic hurdles and challenges in entering the housing market. The rise in interest rates has limited their ability to build credit and save for down payments, so we do have many renters by necessity.
Despite these challenges, the favorable labor market conditions for younger generations will help them. They are well-educated and financially disciplined, which bodes well for their future economic stability. Jonathan was optimistic that younger generations will overcome these short-term challenges and eventually contribute to solving broader issues like affordable housing and climate change.
Normalizing demand, ahead!
We concluded things on the note that we may have record new supply coming online in the short term, presenting more pressure on rents and higher concessions in some markets. But the fundamentals suggest that a challenging 2024 is going to give way to normalizing demand that looks very strong for the future, and it’s vitally important for our economy and the future of the country.
There is no such thing as a US housing market. We are made up of thousands of housing markets. So, pay attention to your own backyard and some of the challenges we were talking about. And put a little music in your life! (Did I mention that Johnathan is also a DJ?! Listen to the special playlist DJ Smokey Smoke put together especially for our podcast here!) To experience our entire conversation, you can hear the complete episode, From Dollars to Doors: The U.S. Economic Impact on Multifamily, wherever you listen to podcasts.
(Disclaimer: Author is contracted separately to host this multifamily tech-focused podcast, and it is not related to Broadband Communities. For the dedicated Broadband Communities ‘Beyond the Cable’ podcast, you can find all episodes on our Podcast page.)
Valerie M. Sargent is a multifamily speaker, trainer and executive consultant, and is the multifamily news correspondent for Broadband Communities. Contact her at http://www.valeriemsargent.com. For more information, visit http://www.bbcmag.com.
