By
Michael H. Zaransky is Founder and Managing Principal of MZ Capital Partners, an award-winning multifamily investment and development firm.getty
Consumers have been catching some relief lately from inflation, or, at least, they’re feeling its pull less acutely. Since June 2022, when the year-over-year consumer price index peaked and increased 9.1%, inflation has begun to normalize—with caveats, of course.
According to the U.S. Bureau of Labor Statistics, the consumer price index rose 0.3% in April, remained unchanged in May and declined by 0.1% in June. Despite these fluctuations, inflation has remained below 4% since June 2023. Perhaps the U.S. economy is moving closer to the Federal Reserve’s target inflation rate of 2%.
Still, inflation continues to bite at one of the largest consumer expenditures: housing. The shelter index, which measures the costs of housing, was 5.2% higher in June than at the same time in 2023. That index rise contributed almost 70% of the all-cost inflation rise, excluding the food and energy index, according to the BLS. So even as inflation begins flattening elsewhere, it continues to impact housing, including the multifamily market.
Sounds problematic, right? Not entirely. While no sector is truly inflation-proof, as the founder of a multifamily development and investment firm, I’ve found that multifamily housing tends to be resilient. It’s a tangible asset built to sustain a variety of economic conditions.
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How Multifamily Housing Responds To Inflation
Many investors understand that inflation can be a net positive for the multifamily housing sector. As Veena Jetti, founder of a multifamily investment firm, wrote in a Forbes article in July 2022, “I’ve found higher inflation and interest rates work in favor of multifamily.” At its most basic, here’s why.
When prices of goods and services rise, many consumers put off long-term purchases, such as homes. But consumers require that roof, so they rent. That drives demand for apartments, single-family rentals and other multifamily properties. Increased demand raises occupancy and generates higher rental rates, cash flow and property values. This has been the case for decades.
Real Estate Witch said rents have increased 208% since 1985, while inflation has risen 149%. From 1985 to 2001, rents outpaced inflation by 40%, the report further noted. I’ve found that rents and inflation often run together, a trend that multifamily housing continues to illustrate.
We noted earlier …
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