National multifamily dynamics have been unusual in the last few years. As GlobeSt.com has reported in detail, high construction rates in some parts of the country have depressed rent growth and raised vacancy rates.
Developers and investors chased shifting demographics and people working from home. Just this year, 496,600 multifamily units were built, more than all of 2023, according to Census Bureau data pulled by the National Multifamily Housing Council (NMHC).
After the last two years of historically high construction volumes, things are expected to slow, and the balance between supply and demand is expected to return. But that addresses averages, whether national, regional, or city, and says nothing about the distribution of unit types — 1 through 5 stars — that might be needed.
Recommended For You
A new NMHC research note indicated that out of the nearly 500,000 units, CoStar assigned 4- or 5-star ratings to about 77% of them. Another 22.4% received 3-star ratings, while 0.4% were in the lower-quality but more affordable 1- and 2-star ratings.
The focus on the upper-end apartment construction isn’t unusual. Between 2015 and 2019, 84% of all apartment deliveries were either 4-star or 5-star.
The 1-through-3-rated apartments are referred to as affordable apartments, a catchall type that means affordable to most households without government assistance. That collective class has come under increasing economic pressure. Effective asking rents for 1- and 2-star apartments have increased at an annual rate of 3.4% over the last 11 years; 3-start apartment rents increased by 3.8% annually. Both have seen faster growth than for 4- and 5-star units, which saw 2.7% annual increases over the same period.
In Q3 of 2024, 1- and 2-star apartments have effective asking rents of $1,321 a month; 3-star apartments were $1,579 a month; 4-stars were $2,049; and 5-stars were $2,980. That’s a $258-a-month jump between 1/2 and 3; $470 a month from 3 to 4; and $931 from 4 to 5.
Now, look at the lower household income limits per month by income quintile according to the Census Bureau: $0 for the first quintile; $2,750 for the second; $5,183 for the third; $8,416 for the fourth; and $13,775 for the fifth. The lower the income, the more difficult it is to pay for any apartment. Moving up into a higher category to expand the availability of apartments becomes impossible.
But the portion of apartments for lower-income households has been shrinking, with 1-, 2-, and 3-star units collectively falling from 39.0% of all apartments in the first quarter of 2014 to 30.3% in the third quarter of 2024. Now 4- and 5-star units are the “vast majority” of units, according to NMHC. There isn’t enough supply for lower-end demand, so rents rise faster.
“More broadly, our results suggest that what happens at the higher end of the market influences lower-end apartments as well: higher demand for 4- and 5-Star apartments leads to higher rent growth among 1- and 2-Star units, and higher vacancy in the 4- and 5-Star space leads to lower rent growth among 1- and 2-Star units,” they wrote.
More development at the lower-end of multifamily would help, but the economics rarely work out without some sort of subsidy because of the cost of building.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
