© 2018 Fannie Mae. Trademarks of Fannie Mae. 8.15.2018 1 of 5

Multifamily Market Commentary – August 2018

A Lingering Housing Shortage

With multifamily rent levels continuing to grow to historic highs and multifamily construction on the rise in many of the 

country’s major metros, valid concerns exist about potential overbuilding or overvaluation within the multifamily sector. 

However, a closer look at demographic and housing development data suggests that multifamily rents and single-family 

home prices have been rising over the past several years primarily as a result of increasing demand stemming from a growing 

population and steady job market, coupled with limited housing supply. 

Between 1990 and 2006, approximately 1.5 million housing units were completed each year, while approximately 1.4 million 

new households were formed annually, as seen in the chart below. While there may have been housing market surpluses 

and shortages at points between 1990 and 2006, over the entirety of the period supply and demand were likely in balance, 

especially considering annual obsolescence of an estimated 100,000 units per year.

At the peak of the housing boom, in early 2006, annual completions rose to a pace of approximately 2 million units per year 

but fell precipitously to fewer than 600,000 units by 2011. While the pace of household formation declined during the Great 

Recession, similar to what occurred in other recessions since 1990, household formations recovered shortly thereafter. 

Housing Completions and Total Households

Source: Census, per Moody’s Analytics

Note: Does not include annual shipments of manufactured homes, which averaged 171,000 units per year 1990-2017 (Census)

But this time the level of housing construction has not yet risen to match the pace of household formations, as illustrated in 

the chart above. Nor has it risen to satisfy the needs of today’s larger population and the resulting need for a sufficient supply 

of vacant housing units necessary for the smooth functioning of healthy real estate and job markets. Rather, since 2008 

housing completions have averaged just 870,000 units per year, but household formations during the same period have 

risen to nearly 970,000 units per year. This 100,000 unit per year deficit, coupled with the estimated annual 100,000-unit 

loss from obsolescence and destruction, which has accumulated for nearly 10 years now, likely indicates that nationwide 

there are at least 2 million fewer units in the housing market today than are needed for a long-term, balanced market.

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

120

140

Housing Units Completed SAAR (000s)

Total Households (millions)

Total Households

Housing Completions
© 2018 Fannie Mae. Trademarks of Fannie Mae. 8.15.2018 2 of 5

Shortage of Supply, Abundance of Demand

Single-family home prices and multifamily asking rents have more than recovered from the lows of the housing bust and 

are even exceeding previous peaks in most metros. The overall economy has recovered, as well, with increasing consumer 

spending and historically low unemployment. However, the residential construction industry has faced a more stagnant 

recovery. Historically, housing construction has tended to move in line with housing demand, especially during periods of 

increasing employment. With these components faring well, it is expected that homebuilders would undertake as many 

opportunities as possible to build and sell new homes – but 

that has not been the case.

Where did Everybody Go?

There are a few roadblocks to new construction. 

One is labor. The U.S. lost 2.3 million construction 

jobs from 2006 to 2011. Developers have offered

higher wages to win back these workers, and the 

effort has been successful in getting the numbers 

back up: As of June 2018, 282,000 total 

construction workers have been added to the 

industry year over year, bringing the construction 

unemployment rate below 5.0 percent. Still, that is 

not enough workers to meet demand, and many of 

the most skilled laborers from a decade ago have 

been slow to return to the market as retirement and 

other employment prospects have likely drawn 

them away. As a result, the average hourly earnings 

for most construction workers have been increasing, 

as seen in the chart to the right. 

Material Costs Volatile

Increasing operational and material expenses are also 

construction headwinds. Lumber costs, which are 

currently subject to tariffs, are beginning to rise again. 

This expense alone has caused an increase in 

multifamily market pricing by an estimated $2,430 

per unit, according to a National Association of Home 

Builders April 2018 report. Other crucial materials 

like gypsum and concrete are seeing increases that are

also outpacing inflation, as seen in the chart to the

right. In contrast, tariffs on raw steel and aluminum 

are not as worrisome. Although they are expected to 

have a slight impact on construction costs, the overall 

impact on commercial construction activity is 

expected to be negligible, according to CBRE’s March 

2018 U.S. MarketFlash Report. Developable land 

prices for multifamily projects have also been fairly

volatile, as seen in the chart to the right. All of these 

costs, combined with diminishing subsidies for 

affordable housing development, suggests that 

developers can only achieve acceptable profit margins 

by building higher-end Class A units in areas that are 

capable of sustaining high rents.

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

$75,000

$18

$20

$22

$24

$26

$28

$30

Earnings per Hour

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Lumber

Gypsum

Concrete

CPI

Average Hourly Earnings of Non-Supervisory 

Construction Workers

Source: Bureau of Labor Statistics, per Moody’s Analytics

Materials Year over Year Percent Change

Source: BLS Producer Price Index

Multifamily Development Site Land Prices

Note: Prices are per buildable unit, based on a trailing 12-month average 

Source: Real Capital Analytics
© 2018 Fannie Mae. Trademarks of Fannie Mae. 8.15.2018 3 of 5

Prior Overbuilding Leads to Underbuilding Now

Another factor contributing to the housing bust of 2008 was oversupply from overbuilding. Developers churned out housing 

units, primarily single-family houses, to take advantage of historically high housing prices and consumer demand during 

the early 2000s. Consumers had more options to move into their own homes with new loan products and easier access to 

credit. Institutional and global investors helped spur the housing demand through increasing purchases of private label 

mortgage-backed securities. All this demand made it relatively easy for homebuilders to justify development plans and for 

lenders to offer financing. But when the housing bust took place, sales volumes fell, prices declined, and foreclosures 

climbed. Demand for owning single-family housing then plummeted. 

In the wake of the housing bust, lenders have been more wary of financing residential construction. Developers continue to 

build, but credit for residential real estate development and construction remains relatively tight compared to prior to the 

housing bust. Between 2008 and 2012, lending for single-family residential units decreased 73 percent, as seen in the chart 

below. Additionally, the nation’s largest banks shrunk their market share by 7.0 percent. 

According to a 2017 NAHB Eye On Housing report, the majority of housing construction loans are currently made by smallor mid-sized commercial banks with fewer than $10 billion in assets, of which between 1 and 3 percent are concentrated in 

residential construction lending.

Value of Residential Construction Loans Outstanding 

Source: FDIC

$0

$50

$100

$150

$200

$250

Billions
© 2018 Fannie Mae. Trademarks of Fannie Mae. 8.15.2018 4 of 5

Millennial Demand for Multifamily Housing a Bright Spot

While overall housing inventory has lagged, multifamily demand has continued to grow. With an increasing population and 

a recovering economy, more people are seeking multifamily homes that suit their particular preferences. While the largest 

cohort renting multifamily units are Millennials, a small number of Baby Boomers and Gen-Xers have also turned to renting 

multifamily, as illustrated in the chart below. 

Millennials, a portion of whom are beginning to age into higher homeownership levels, according to previous Fannie Mae 

research, still remain a meaningful driver of multifamily demand. Many young millennials are entering peak renting ages 

as they continue to rent near urban centers offering most employment and educational opportunities. They remain the 

single largest cohort of renters.

Cohort Structure/Tenure Share 

Housing Demand Will Only Increase

Despite the feeling that a new apartment complex is popping up on every street corner, there is indeed a national shortage 

of housing that is making both homeownership and renting increasingly expensive and, in many cases, unaffordable. An 

expanding economy produces more jobs, which, in turn, produces more households. This then leads to increased housing 

demand spread across the country, not just in coastal markets or the urban cores. There is an ongoing need for more housing, 

especially more affordable housing, in both the single-family and multifamily sectors, and that demand is not expected to 

subside in the near future. Innovative and creative ideas are needed to reduce building costs – such as coming up with more 

efficient modular homebuilding techniques or leveraging 3-D printing technology to boost new supply. The time is now to 

ease the nation’s lingering housing shortage. 

44%

35%

0%

64%

54%

0%

73% 66%

0%

76% 74%

29%

34%

20%

28%

0%

15% 20%

0%

10% 12%

2%

2%

2% 2%

0%

2% 2%

0%

25% 29% 3% 3%

14% 16%

0%

10% 12%

0%

11% 12%

2005 2015 2005 2015 2005 2015 2005 2015

Age 25-34 Age 35-44 Age 45-54 Age 55+

SF Own SF Rent MF Own MF Rent

Source: U.S. Census Bureau, American Community Survey 1-Year Estimates.

Note: Single-family includes housing units in structures with 1-4 units. Multifamily includes units located in 5+ unit structures. 

Excludes manufactured/mobile homes and other less common types of housing units (e.g., boat or RV). 
© 2018 Fannie Mae. Trademarks of Fannie Mae. 8.15.2018 5 of 5

Harry Paul

College Intern

Tim Komosa

Economist Manager

Multifamily Economics and Market Research

August 2018

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research 

Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or 

expected results, are based on a number of assumptions, and are subject to change without notice. How this information 

affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts and 

other views on information it considers reliable, it does not guarantee that the information provided in these materials is 

accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these 

views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published 

by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie 

Mae or its management.