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  • Writer's pictureAlex Dmyterko

Things to Watch in Multi-Family Apartment Development in 2023

Updated: Feb 13, 2023

Significant macroeconomic factors impacted the US and the global economy in 2022 as the world was continuing to transition from COVID-19. Pent-up consumer demand continued to put pressure on supply chains, which saw exceptional disruptions and constraints that will reverberate well into 2023. Due partly to supply chain considerations, inflation started to increase to levels not seen since the 1980s. Interest rates are currently at 15-year highs and will likely stay at elevated levels until the Federal Reserve Bank believes that they have achieved their desired effect and inflation has been tamed.

These macroeconomic events certainly impacted both the development and operations of multi-family apartments in 2022 and will continue to affect them well into 2023. In this article, I will address how inflation, interest rates, and demographic changes continue to make Streams Development bullish on developing and operating multi-family apartments in 2023 and beyond. Stream’s Development continues to develop and will complete our multi-family development, The Streams at Battery Park, late this year. As we complete our current project and look for future development opportunities, we keep a close watch on macroeconomic elements that will influence the supply, demand, and, ultimately, the expected return of our multi-family apartment developments.

Inflation and Interest Rates

Businesses will remember 20the year of high inflation and ever-increasing interest rates. From January to December of 2022, inflation rose from 1.4% to 7.04%, peaking at over 9.1% in June of 2022. After many consecutive months of increasing inflation, the Fed started raising the Federal Fund Rate in March 2022 - rising from .08% to 4.33% by December 2022 - an incredible 5,300% increase. Thankfully, the increasing Fed Fund Rate began to have its intended effect, and inflation began to decrease by July 2022, declining to 6.45% by December 2022. A couple of noteworthy factors make me optimistic that the latter half of 2023 will see both inflation and interest rates reduced to levels closer to historical averages.

Firstly, inflation has been continually dropping since its peak in June 2022, and the Fed has indicated future rate increases will be much smaller. Secondly, I believe that the Fed has been overstating inflation by using a twelve-month look-back in its calculations. In other words, the Fed’s stated inflation rate in December is based on the average rate of the last twelve months. We believe that a more appropriate measure would be to take the Nov and Dec rates and extrapolate them forward, which would result in the current inflation rate of 2.8-3.6% ANNUALLY. Thirdly, Business leaders, policymakers, and pundits are putting pressure on the Fed to prevent a “hard-landing” for the economy by furt

her slowing or holding the current Fed Rate at its current level. With 70% of economists predicting a recession in 2023, it’s hoped the Fed won’t make a probable recession worse than it needs to be.

Impact on Multi-Family Developments

Rising interest rates will continue to drive up multi-family apartment development costs in 2023, replacing inflation’s upward pressures of 2022. Ironically, the cure has become the new problem. However, we believe that rental rates partially offset this with a continued, although at a slower, upward trajectory.

On the operational side, owners and operators of multi-family housing will continue to see escalating costs in 2023, albeit at a slower pace. This will primarily be due to increasing utilities, maintenance, and management costs. Several technological improvements are being used by savvy owners to help reduce costs through efficiencies, including switching to solar power, improved collection software, and taking advantage of cost segregation accounting.

It’s also important to note that with the Fed Rate at a 15-year high, debt and debt servicing costs have also increased. With each multi-family development having a unique capital structure, the impact of growing debt costs will be unique. However, the increasing cost of debt will result in planned developments pausing until the return of more favorable funding conditions.

Apartment Demand and Occupancy Rates

Multi-family occupancy rates are forecasted to remain high at over 95% in 2023, although softening towards the end of 2023. Rent is also projected to increase by 3.9% in 2023, although it is also expected to moderate towards the end of the year. There are a few things you may find interesting when considering the ongoing demand for multi-family housing in 2023 and beyond.

Cost of Ownership vs. Renting

The cost of home ownership and the cost of renting have been within reasonable ranges of each other for the past 13 years. The gap between the two has been within approximately $200 a month, on average, from 2010 until Q4 of 2021. Starting in Q1 of 2022, the gap between the two is the widest gap on record. From Q4 of 2021 to Q3 of 2023, the average monthly cost of ownership rose from $2,181 to $3,363 - an incredible 54% increase. In comparison, from Q4 of 2021 to Q3 of 2022, the average monthly rent cost rose from $1,980 to $2,142 - an 8.2% increase.

While the increasing spread between the cost of ownership and renting is moderating, the material cost difference between the two will be a major deciding factor for homeowners and renters on where they choose to live. It will likely keep renters renting for longer and increase the demand for rentals as homeowners choose to become renters to reduce their costs. This may also have a longer-lasting effect on home buyers who may prefer to rent until interest rates stabilize. It’s clear this gap between the cost of ownership and the cost of renting, in part, will keep demand high for multi-family housing.

Demographic Changes

Another macro consideration that will continue to impact the supply and demand for multi-family housing is our aging population. The US population continues to age, and in the next 15 years, there will be 80 million Americans who are 65 years or older. Older Americans will frequently downsize their living space, and many will choose to rent rather than buy for a variety of reasons. Two major decision factors for this, aside from the significant cost differential we currently see, is the ease of renting and its maintenance-free lifestyle compared to homeownership and the increasing availability of high-end rental options.


Rising interest rates will continue to drive up multi-family development costs in 2023, replacing inflation’s upward pressures of 2021 and 2022. With inflation dropping month-over-month since July 2022, further Fed Rate increases seem unnecessary and heavy-handed.

With 70% of economists signaling the U.S. economy is headed for a recession in 2023, continued Fed Rate increases, even at smaller increments, increase the likelihood of a hard landing for the economy. Further increases will ironically turn the cure into a new problem, creating unnecessary economic pain. The elevated Fed Rate is continuing to reduce inflation as intended, and it’s important to give it time to do its job. Nonetheless, we expect a softening of the development market in ‘23 compared to the last two years.

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