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Introduction: The U.S. multifamily housing sector is experiencing strong rental demand amid an affordability crisis. Rents surged during 2021–2022, pushing cost burdens to record highs, before rent growth cooled in 2023 (jchs.harvard.edujchs.harvard.edu). At the same time, economic and demographic forces – from high interest rates to shifting generational trends – are shaping the rental market’s future. This report examines the current state of rental affordability and demand, the key drivers behind these trends, the outlook for the next 5–10 years, and innovative strategies that investors and developers are deploying to address affordability pressures while maintaining profitable operations. The analysis draws on industry research, institutional data, and expert forecasts to provide a comprehensive view for real estate investors and developers.
Rental demand in the United States is near historic highs, but many tenants are struggling with affordability. In 2022, half of all renter households were cost-burdened, spending over 30% of income on housing – an all-time high of 22.4 million households (jchs.harvard.edu). Of these, 12.1 million renters paid over half their income on rent (severely burdened) (jchs.harvard.edu). These figures reflect the aftermath of the pandemic-era rent surge: rents climbed far faster than incomes, eroding affordability. Inflation-adjusted median rents increased 21% from 2001 to 2022, while median renter income rose only 2% in that period (jchs.harvard.edu). The supply of low-cost rentals has dwindled as well – in 2022 there were just 7.2 million units with rents under $600, a loss of 2.1 million low-rent units since 2012 (jchs.harvard.edu). This tightening supply at the low end further exacerbates the affordability gap.
Meanwhile, the overall demand for rental housing remains robust. The number of renter households has reached an all-time high, with about 45.6 million U.S. renter households in 2024 (roughly 34% of all households) (nationalmortgageprofessional.com). Renter household formation outpaced homeowner household growth over the past year as more Americans opted to rent. This surge was fueled in part by the overheated for-sale housing market – many would-be buyers have deferred homeownership, keeping rental demand high. Even as demand grew, rent growth has recently decelerated sharply. After spiking over 15% year-on-year in early 2022, rent growth cooled to just 0.4% by Q3 2023 amid a wave of new apartment supply and modestly loosened vacancies jchs.harvard.edu). Vacancy rates in professionally managed apartments, which hit a low of ~2.5% in 2022, rose to more normal levels (~5–6%) by late 2023 as new units came onlinecbre.comjchs.harvard.edu). National rental vacancy stood at 6.6% in Q3 2023, up from the pandemic low of 5.6% (jchs.harvard.edu). In absolute terms, however, occupancy remains healthy and rentals are still over 94% occupied on average, reflecting the persistent shortage of housing in many markets.
Housing supply dynamics have shifted notably in the past year. Developers delivered a flood of new multifamily units in 2022–2023 – about 436,000 apartments were completed in the year ending Q3 2023, the highest annual total since 1988 (jchs.harvard.edu). These additions (concentrated in fast-growing Sun Belt metros) temporarily created some slack in overheated rental markets, tempering rent hikes (jchs.harvard.edu). However, the construction pipeline is now pulling back dramatically. Multifamily housing starts fell ~30% year-over-year by late 2023 as high financing costs and economic uncertainty hit developers (jchs.harvard.edu). In October 2023, new apartment starts slowed to a 402,000-unit annual rate (jchs.harvard.edu). This decline in new construction foreshadows tighter supply in coming years once the current wave of projects is absorbed. In short, renters got a brief respite in 2023 from runaway rents, but affordability remains strained and the fundamental supply shortfall persists. The next sections explore the forces driving these conditions and what lies ahead.
Multiple forces are contributing to strong rental demand and the ongoing affordability challenges in multifamily housing. Key economic factors include the high cost of homeownership, rising costs of development/operations, and broader macro trends. Mortgage interest rates climbed above 7% in 2023–2024, dramatically increasing the cost of buying a home. With home prices still near record highs, renting is now about $440 per month cheaper than owning, on average (cbcworldwide.com). This wide cost gap between owning and renting has pushed many households to remain renters by necessity. In Fannie Mae’s April 2025 survey, 35% of consumers said they would prefer renting over buying if they moved – the highest share in over a decade (cbcworldwide.com). Would-be first-time buyers, especially younger adults, are delaying purchases due to the affordability barrier, thus bolstering rental demand. At the same time, operating a rental property has become more expensive. Landlords face higher operating costs from insurance premiums to labor and utilities, which puts upward pressure on rents needed to cover expenses (nmhc.org). Development costs have also been driven up by construction cost inflation and regulatory burdens, making new housing more expensive to build. For instance, research by NMHC/NAHB finds that government regulations account for an average 32% of multifamily development costs (and up to 42% in some cases) (nmhc.org). These high costs limit the volume of new supply and keep overall rents higher than they might be with a more efficient market.
Demographic trends are also shaping rental housing demand. The millennial generation (now late-20s to early-40s) powered a surge in rental households over the past 15 years, but that wave is cresting as more millennials transition into homeownership. The number of renter households headed by millennials peaked around 2019 and has begun to decline (jchs.harvard.edu). In their place, Gen Z (now in their 20s) is emerging as the primary source of new rental demand. Gen Z is slightly smaller in size than the millennial cohort, but still a large group now entering prime renting age (jchs.harvard.edujchs.harvard.edu). This means rental demand will continue to grow, though perhaps at a more moderate pace than during the millennial boom. Meanwhile, other demographic shifts support rentals: Baby Boomers and empty-nesters are increasingly downsizing from homes into rentals, and immigration (which slowed in 2020) has rebounded, contributing to household formation in many metropolitan areas. Household growth in Sun Belt and Mountain West metros remains robust, driving rental demand in those regions in particular (cbre.comcbcworldwide.com). Overall, the U.S. renter pool is becoming more diverse – including everyone from young professionals and families unable to afford homes, to affluent “lifestyle renters” by choice. Notably, even high-income households have been renting in greater numbers (the count of renter households earning $75,000+ has risen significantly) (nationalmortgageprofessional.com). This reflects the tight for-sale market and changing attitudes about ownership.
Policy and regulatory factors play a dual role, sometimes exacerbating the affordability problem and sometimes offering potential relief. On the supply side, restrictive local zoning and slow permitting have constrained housing construction for decades, especially for multifamily projects in high-demand areas. Until recently, many cities zoned the majority of residential land exclusively for single-family homes (prohibiting apartments). This has started to change – states like Oregon, California, and Maine have passed laws to legalize duplexes or multi-unit housing in former single-family zones, aiming to expand housing options (csg-erc.orgplanning.org). Such zoning reforms, along with incentives for Transit-Oriented Development and accessory dwelling units (ADUs), could incrementally boost supply over the coming years. However, regulatory hurdles and community opposition (NIMBYism) still pose challenges in many markets. Additionally, well-intentioned tenant protection policies can sometimes impact the market. For example, strict rent control or costly local requirements can deter new investment and maintenance. A 2025 study found that several popular renter protection regulations were correlated with higher overall rents and reduced supply, particularly affecting lower-income renters (nmhc.org). This suggests that without accompanying pro-supply measures, certain regulations may inadvertently worsen affordability in the long run.
On the demand side, government rental assistance has not kept pace with need. Federal housing vouchers and subsidies reach only a fraction of eligible low-income renters. During the pandemic, emergency rental assistance and eviction moratoriums provided temporary relief. But by mid-2023 those funds were largely exhausted and eviction filings had returned to pre-pandemic levels, underscoring the precarious situation for many low-income renters (jchs.harvard.edu). Homelessness has spiked in many cities – the nation’s homeless count (roughly 580,000 on a single night in 2022) is the highest on record (jchs.harvard.edu). These pressures have elevated housing affordability as a political priority. Policymakers at federal and local levels are now focused on encouraging housing production (for example, the 2022 Housing Supply Action Plan and expansion of Low-Income Housing Tax Credits) and preserving existing affordable units. Overall, the U.S. faces an acute housing supply-demand imbalance: by one estimate, an additional 4.3 million new apartments are needed by 2035 to meet demand and relieve affordability pressures (nmhc.org). Bridging this gap will require coordinated efforts by both the public and private sectors.
Figure: The cost of homeownership vs renting has diverged. Rising interest rates and home prices have made buying a home significantly more expensive than renting. As of late 2024, the average monthly mortgage payment was ~35% higher than the cost of renting an equivalent home (cbre.com). This ownership premium (illustrated by the widening gap in the chart) has priced many households out of buying, thereby sustaining strong rental demand (cbcworldwide.com). Even with modest cooling in housing prices, the rent-versus-buy cost gap is expected to remain historically large in the near term.
Looking ahead, real estate investors can expect the multifamily rental market to remain fundamentally robust, though with important regional and cyclical variations. Most forecasts call for moderate rent growth over the next five years, with demand outpacing new supply in many areas. CBRE projects U.S. apartment rents will increase about 3.1% annually on average through 2029, slightly above the long-term norm of ~2.7% per year (cbre.com). This projection reflects confidence in sustained renter demand, supported by solid job growth and the continued “renters by necessity” cohort who are priced out of homeownership. Other industry outlooks similarly foresee rent growth in the 2%–4% range annually in the mid-2020s (toljcommercial.commatthews.com).
Rent increases may be somewhat subdued in the immediate term (2024–2025) in markets that just absorbed a glut of new units, but even those markets are expected to return to positive rent growth by 2025 as supply peaks and demand catches up (cbre.comcbre.com). By 2026 and beyond, as the construction pipeline shrinks, occupancy rates should rise and give landlords more pricing power again (cbre.com). Notably, rental demand will be bolstered by the high cost of buying for the foreseeable future – although mortgage rates may gradually ease from recent highs, the cost-to-buy premium is likely to remain above historical levels through the decade (cbre.com). This suggests many young adults will continue renting longer than past generations, keeping the renter population large.
A critical factor in the outlook is the supply side. The U.S. is currently in the tail end of a construction boom, with record numbers of apartments completed in 2022–2024. However, as noted, multifamily development is now pulling back sharply. By mid-2025, new multifamily starts are projected to be ~74% below their 2021 peak and well below the pre-pandemic average pace (cbre.com). This abrupt slowdown in construction is due to a combination of factors: higher interest rates and tighter credit (making projects harder to finance), elevated construction costs, and concerns about short-term oversupply in some cities. The pipeline of projects for 2025–2026 is considerably thinner, meaning fewer new deliveries hitting the market a couple of years from now (cbre.com). In the near term, the large volume of units completed recently has pushed vacancy rates up slightly and kept rent growth modest in certain high-supply locales (e.g. Austin, Nashville, Charlotte) (mf.freddiemac.commf.freddiemac.com). But as these units get absorbed and with far fewer new projects coming behind them, conditions are expected to tighten again.
By 2026, national vacancy could drift back down and rent growth accelerate above trend (cbre.com). In essence, a “supply whiplash” is possible: today’s construction boom turning into tomorrow’s undersupply. Markets that saw a surge of new luxury apartment towers may have a year or two of flatter rents, but longer-term demand growth (from jobs and population gains) will likely outstrip the diminished new supply. This bodes well for owners in terms of occupancy and rent trends, though it raises concerns that overall housing deficits – and affordability problems – will persist.
Of course, the outlook is not without risks. A major wild card is the broader economy. The baseline forecasts assume a soft landing or mild economic growth scenario. If instead the U.S. tips into a recession, the multifamily sector would face headwinds. Under a downturn scenario, household income growth would stall and job losses could dampen formation of new renter households. Rental demand tends to dip during recessions as some renters double up with roommates or move in with family, and landlords may need to offer concessions to maintain occupancy. Freddie Mac warns that in a recession case, the combination of weak demand and the remaining new supply could drive vacancy higher and put downward pressure on rents in the short run (mf.freddiemac.commf.freddiemac.com).
Another risk factor is interest rate volatility and capital markets. Elevated interest rates not only constrain development but also impact multifamily asset values (via higher cap rates). If rates stay higher for longer, investors might face refinancing challenges or lower property values, which could indirectly affect the rental market if owners cut back on maintenance or if distressed assets lead to disruptions. On the policy front, there is a possibility of expanded rent control measures in some jurisdictions if affordability worsens. Already, some cities and states (e.g. California, New York, Minnesota) have implemented rent caps or stricter tenant protections. While these can provide short-term relief to tenants, they are a risk factor for investors as they can limit revenue growth and discourage investment in those markets (nmhc.org). Conversely, positive policy developments – such as substantial federal investments in housing or tax incentives for affordable development – could improve the outlook by boosting supply.
Considering regional nuances, Sun Belt and Mountain region markets that led in new construction will likely see a brief period of higher vacancy and slower rent growth into 2024, but then outperform later as their economies and populations keep expanding (cbre.comcbre.com). Many of these high-growth areas (Texas, Florida, the Carolinas, etc.) still have relatively lower costs of living, attracting in-migration that fuels rental demand. Meanwhile, coastal gateway cities (New York, Los Angeles, etc.) and many Midwest/Northeast markets did not build as excessively and have tighter vacancy today; these are expected to enjoy steady rent increases (~3%+ annually) through the next few years (cbre.comcbre.com). In the longer term (5–10 years out), the geographic patterns of demand will depend on economic opportunities, migration trends, and remote-work influences.
But broadly, the fundamental need for housing is large and growing, and multifamily rentals will remain a critical part of meeting that need. Even if homebuying picks up slightly later in the decade (as millennials age into their 40s and mortgage rates potentially ease), the sheer undersupply of affordable starter homes means many families will remain in the rental market. In fact, some analysts predict the U.S. rentership rate could continue to rise in coming years as younger generations show less attachment to homeownership as a life goal (nationalmortgageprofessional.com). For investors and developers, this signals opportunity – sustained rental housing demand – but also a mandate to innovate in order to deliver housing that is both profitable and attainable.
Private-sector players are adopting a range of strategies and innovations to help alleviate affordability pressures in rental housing, often while improving efficiency and returns. These approaches include new construction methods, alternative housing models, creative deal structures, and technology-driven management. Below, we highlight some of the most promising solutions gaining traction in the multifamily industry:
The U.S. multifamily sector sits at the intersection of strong investment fundamentals and urgent social need. Rental demand is expected to stay elevated due to economic and demographic tailwinds, yet millions of households will continue to feel affordability pressures absent significant increases in supply or innovation in housing delivery. Real estate investors and developers have a pivotal role to play in bridging this gap. By understanding the evolving market dynamics – from rent growth projections to policy risks – and by adopting forward-looking strategies like modular construction, build-to-rent models, diverse unit mixes, co-living designs, and tech-enabled management, the industry can create housing solutions that are both profitable and responsive to the affordability crisis. In the next 5–10 years, those firms that successfully integrate these innovations will be best positioned to meet the nation’s rental housing demand while also contributing to more sustainable and inclusive communities. Achieving this balance will not only yield solid returns but also help ensure that quality housing remains within reach for the broad spectrum of American renters.
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