The story of 2024 was supply: developers delivered ~608,000 multifamily units — the highest level in nearly 40 years.
The narrative for 2025–2027 shifts to absorption and tightening. The construction engine has already slowed while demand continues to build. Timing is critical.
Where We Are Now
Completions peaked, starts declined.
In 2024, completions hit ~608,000 multifamily units — a 38-year-high. More than half of those were in large-scale, 50+ unit buildings.
The South led with ~292,000 units, nearly half of all completions. The West followed with ~163,000 units, while the Midwest and Northeast delivered ~87,000 and ~68,000, respectively.
Starts fell about 25% to ~355,000 in 2024, reflecting tighter financing and weaker valuations. By year-end, the number of units under construction dropped ~21.5% from the 2023 peak, landing near ~773,000. The pipeline has clearly crested.
Rents and vacancies tell two stories.
Asking rents in the professionally managed sector rose +0.9% year-over-year in Q1 2025, but results varied sharply by market. Cities facing heavy new deliveries struggled with flat or negative rent growth, while metros with limited new supply saw occupancy tighten and rents climb. National vacancy fell to ~4.8% in Q1 2025, and 47 of 69 tracked markets reported quarterly vacancy declines.
Demand Is Doing Its Part
Household formation accelerated.
In 2024, renter household formation increased by ~848,000. Through Q1 2025, the year-over-year increase reached ~1.1 million.
Absorption strengthened.
Apartments absorbed ~436,000 units in 2024, one of the strongest annual results outside the 2021 boom.
Higher-income renters set the tone.
Mortgage rates hovered in the mid- to high-6% range during 2024, discouraging many would-be buyers. As a result, renters earning $75,000+ now make up roughly one-third of all renter households — the highest share on record.
Why Oversupply Is Likely Transient
Starts respond quickly to market forces.
Developers have already pulled back. Rising operating costs, tighter construction financing, and wider cap rates make fewer projects feasible. Insurance costs jumped an average of 26% in 2023, while payroll, repairs, maintenance, utilities, and taxes also climbed. These pressures point to a thinner 2026–2027 delivery slate even as demand keeps building.
New supply leans high-end.
The median asking rent for new deliveries in late 2024 came in near $1,900, and more than two-thirds of new units asked $1,650 or higher. That tilt toward the luxury segment leaves room for upgraded A- and B+ properties to grow rents. Renovated units can offer meaningful discounts compared to new builds while still attracting tenants who want better finishes than 1990s-era stock.
Positioning Capital for the Next Leg
- Buy the dip in oversupplied markets.
Submarkets that saw rent softness due to new deliveries — especially in the Sun Belt — are likely to lead the recovery once the pipeline clears. Focus on assets with prime locations, solid bones, and below-replacement costs. - Prioritize cash flow stability.
In an uncertain economy, stabilized income is more reliable than speculative bets on cap-rate compression. Seek properties with proven leasing velocity and shrinking concessions. - Drive operating efficiency.
Expense management is becoming the new alpha. Owners who control insurance costs, win tax appeals, and maintain assets proactively will outperform peers who only chase rent growth. - Underwrite supply with precision.
Even with a 25% decline in starts, deliveries remain elevated for several quarters. Investors should model absorption at the submarket level rather than rely on metro-wide aggregates.
Risks to the Outlook
- Economic slowdown. A weaker economy could slow household formation, dampen rents, and stall absorption.
- Policy shifts. Changes in zoning, taxation, or housing assistance could redirect capital flows and reshape local outcomes.
- Climate costs. In 2024, the U.S. suffered 27 billion-dollar weather and climate disasters, with damages totaling nearly $183 billion. For multifamily owners, resilience, insurance coverage, and disaster preparedness are no longer optional.
The Carbon View
We focus on high-conviction submarkets where the 2024–2025 supply wave has already peaked, concessions are rolling off, and the 2026 pipeline is visibly lighter. Our underwriting assumes flat near-term rents, conservative expense growth, and multiple exit strategies — including refinancing when rates normalize.
Optionality beats prediction. Investors who position for tightening without overexposure will win the next cycle.
For weekly signals that guide our underwriting — including supply maps, absorption runs, and expense benchmarks — subscribe to Carbon Weekly: investwithcarbon.com/newsletter
FAQ: The Future of Multifamily
Q1: Why was 2024 a record year for multifamily completions?
Developers delivered projects started during the post-pandemic boom, when low rates, ample capital, and strong demand drove aggressive building. By 2024, that pipeline delivered ~608,000 units, the highest in nearly four decades.
Q2: Does record supply always push rents down?
Not everywhere. Markets with heavy new supply saw rent pressure, but metros with constrained pipelines still tightened. Submarket balance determines the outcome.
Q3: Will fewer starts in 2024 guarantee lower completions in 2026–2027?
Starts fell ~25%, but completions will stay elevated in the short term because projects already in motion continue to deliver. Fewer starts now point to lighter supply in late 2026 and beyond.
Q4: Why invest in renovated A- and B+ units instead of new builds?
New construction commands a premium, while older properties can feel dated. Renovated A- and B+ units hit the sweet spot: modern finishes at lower rents than new builds, but with stronger appeal than 1990s stock.
Q5: How significant is climate risk for multifamily?
Very significant. In 2024 alone, the U.S. recorded 27 billion-dollar climate disasters, with damages approaching $183 billion. Rising insurance costs and resiliency investments are now central to underwriting.
Q6: What could derail the tightening forecast?
Key risks include an economic downturn, unexpected policy changes, or sharp shifts in interest rates. Localized overbuilding could also create temporary headwinds.
Q7: When should investors enter the market?
The best entry points will be in submarkets where supply has already peaked, concessions are easing, and the 2026 pipeline is limited. Stabilized assets with proven demand and multiple exit strategies offer the most attractive opportunities.
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