Freddie Mac Foresees 4 Percent Rent Growth in 2019

The GSE’s midyear outlook finds that the industry is still struggling to build enough multifamily units for a housing-hungry nation, despite elevated construction starts.
Chart courtesy of Freddie Mac

Multifamily projects are being built at an elevated pace across the U.S., but leasing demand is robust and the nation’s housing shortage isn’t going away anytime soon, according to a report by Freddie Mac.


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The government-sponsored enterprise’s midyear outlook report notes that multifamily completions have reached an annualized 365,000 units as of June—up from 345,000 units in each of the two prior years, according to U.S. Census Bureau data. At the same time, the industry is still struggling to build enough housing, as total households have increased by an average of 1.4 million each year during the past three years, while only 1.1 million units of housing per annum have been added.

Keen leasing demand and constrained supply continues to bolster occupancy rates. The second quarter saw strong annualized absorption of up to 327,000 units, with occupancy rising 50 basis points over the year to 95.9 percent, according to RealPage data cited by the report. Rent growth ended 2018 at 5.1 percent and Freddie Mac projects the growth to remain above the inflation rate, at about 4 percent in 2019 and 3.6 percent in 2020. As more supply hits the market, vacancy is expected to rise through the year at a marginal rate, reaching 5.2 percent from the 4.8 percent level at the end of last year.

Origination could hit record high

Multifamily origination volume is expected to have totaled $311 billion in 2018, although the actual figures will not be available until this fall. Freddie Mac projects that lower interest rates and ongoing demand for multifamily investment will continue to drive origination volume higher. Assuming that interest rates remain near 2.2 percent in the second half of the year, volume is projected to grow by 8 percent in 2019 to a record-setting $336 billion.

The report forecasts that vacancy rates will remain tighter in 65 percent of metros, suggesting that they are well-positioned to absorb most of the new supply coming online. Construction remains elevated across metros, but there are some interesting divergences. Washington, D.C., Nashville, Tenn., and Dallas have seen the highest levels of construction starts compared to historical averages. Portland, Ore., Oakland, Calif., and San Diego, on the other hand, have experienced the biggest drops in construction starts despite the ongoing housing crises in those cities.