Excess supply in multifamily has become a major issue in the industry since 2023 and the most important driving factor in rent levels and growth.
There has been explosive growth in housing units, particularly multifamily. In June 2024, private-owned housing completions had increased sequentially by 10.4% to a seasonally adjusted annual rate of 1.71 million units. That includes both single-family and five-or-more-unit multi-family. The latter represented the bulk of the construction at 656,000 units. That was an increase of 26.2% month-over-month or 40.2% year-over-year. That's the highest seasonally adjusted rate since September 1974.
However, this sort of description is of an average phenomenon. The figures don't apply evenly to every building in every residential area. To better understand markets for investing, development, and ownership, it's necessary to know which areas are most exposed to excessive increases in rental unit inventory.
Moody's just completed an analysis of excess supply or its flip side, excess demand, in its defined 82 primarily multifamily markets.
Excess supply was defined as total completions net absorption. They did so on a rolling 12-month basis, providing some smoothing for better observations. Positive values mean excess supply over the amount of demand; negative values mean excess demand over the amount of supply.
Over the last 12 months, four of the top five metros with the most excess supply were also the areas with the largest declines in effective revenue.
Associate director, and economist at Moody's, Nick Villa, the author of the analysis, emphasized using the term excess supply rather than oversupply, the latter having an association with larger levels of imbalance.
The top five metros for excess supply, expressed as a percentage of their inventory, were Raleigh-Durham, NC (2.57%); Austin, TX (2.55%); Jacksonville, NC (1.88%); Minneapolis, MN (1.37%); and Knoxville, TN (1.29%).
The top five metros for excess demand were Tulsa, OK (-0.36%); New Haven, CT (-0.67%); Tacoma, WA (-0.72%); Hartford, CT (-0.87%); and Little Rock, AR (-0.95%).
The reason for percentages rather than strict numbers of units was to show proportional impact given the size of a market. An example is Austin, which had an excess supply of 7,245 units. That would have a larger impact on a smaller market, like Raleigh-Durham.
"Tangentially, a higher level of excess demand in a smaller market would have a more profound impact than for a larger market," Villa wrote.