For the first time since 2009, net demand for apartments has fallen to a negative level, according to data from property management software company RealPage.
It’s a sharp turnaround from what has been mostly a multifamily sector success story for the past decade. Net apartment absorption has had ebbs and flows but has generally seen an upward trajectory since 2010, punctuated by a dramatic recovery after plummeting during the early stages of the COVID-19 pandemic. According to RealPage data, net absorption on a trailing 12-month basis peaked at nearly 700,000 units in the first quarter of last year before seeing stark quarterly declines since then and ending 2022 in negative territory.
The rental demand decline of 2022 was a curious one and differs from the absorption plunge of 2009 in that renter turnover has been, in RealPage’s words, “curiously low.” Renter turnover, in fact, stayed at historically low levels throughout 2022, according to RealPage data. In fact, last year’s turnover was lower than every year on record except 2021.
Rental demand also isn’t being held down by tenant payment struggles. In November 2022, 95.7% of market-rate apartment renters paid rent on time, up 0.6 percentage points year over year. The drop in absorption rates was seen across every price point and nearly every geographic market, meaning that renters aren’t moving to less expensive units or areas.
Instead, “demand for new leases all but evaporated due to low consumer confidence and high inflation.” RealPage senior vice president and chief economist Jay Parsons wrote on the company’s website. Simply put, these are uncertain times for the national economy, making all consumers, including renters, much more likely to stay put.
“We saw this in the 2022 apartment demand numbers very clearly,” Parsons wrote. “We typically see a huge seasonal bounce in demand after college graduations during the summer. But that didn’t happen in 2022. Why? Well, we know from employment data that most found jobs. So, why didn’t they show up in the housing market?
“It appears many got jobs but chose to live with family or friends given economic uncertainty and inflation – including elevated housing costs.”
Theoretically, Parsons said, that would suggest pent-up demand for apartments that could manifest this year. But before that becomes a reality, Americans need to build more confidence in the economy — and that’s no sure bet by any stretch, particularly as many expected a recession to hit by mid-2023. Abating inflation, along with some commensurate rent decreases, would go a long way toward unleashing some of this demand.