As the year draws to a close, the multifamily industry is in transition. After several years of record construction, cooling rent growth, and shifting migration patterns, the market is entering 2026 with more questions than clear answers. While new supply is slowing, economic uncertainty and a weakening labor market are clouding the industry’s outlook.
To assess what’s ahead, Multifamily Executive gathered a panel of leading economists and housing experts for an in-depth discussion of the forces shaping the multifamily landscape—from the slowing job market and affordability constraints to capital markets, policy trends, and renter behavior.
Jay Denton, chief economist at Radix; Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at the National Association of Home Builders; Jay Parsons, part-time economic adviser for JPI and a partner at WayMaker; and Carl Whitaker, chief economist at RealPage, share their latest data-driven perspectives on how the multifamily market is performing as 2025 ends—and where it’s headed in 2026.
What’s your forecast for multifamily rents, occupancy, and absorption heading into 2026?
Denton: First, this is likely the most pessimistic outlook I’ve written in quite some time, and I hope I’m wrong about it. A year ago, many core indicators were showing the signs of a rebound, and then they seemed to fizzle during leasing season in 2025. In the back half of this year, rent growth for new leases started sliding in the third quarter even though supply was lower. We also showed occupancy slightly underperforming the rate from a year ago. The job market is showing clear signs of weakness without a lot of evidence it is going to change course in the next several months. Because of that, my outlook is very cautious.
The economy and job market are always wild cards for multifamily demand, but this situation is different. Other than periods of recession, this is the weakest labor-market momentum heading into a year in a long time. It makes projecting any significant improvement in performance feel overly optimistic, and the bar is already low compared with historic norms.
Multifamily operators have been going through a grind during the last few years, and, unfortunately, it might be more of the same in 2026 based on recent trends for many markets. A focus on renewing leases will be a core theme again next year.
Occupancy: We show occupancy rates averaging about 93.5% for the last 12 months at the national level, but that number is pulled down by some of the high supply, struggling markets in the Sun Belt. Supply will be lower in many locations next year, and much of the 2025 stock will be absorbed. That’s good news, but supply won’t completely disappear, it’ll just moderate to a more normal level. As a nation, it’s possible that we add fewer jobs than new multifamily units in 2026. Job growth will need to far exceed baseline expectations for the occupancy rate to improve significantly. I think it'll be more consistent with 2025's performance at the national level. Some of the stronger, low-supply areas will still achieve 94% or higher.
Rent growth: Given the stall in occupancy rate improvement, rent growth will struggle to rebound back to long-term averages for many locations. If the nation is in positive job growth territory, forecasting models will often expect new rent growth rates of at least 2% to 3%. I think it will underperform that rate given recent trends and the economic outlook for next year. I hope I’m wrong. That said, retention rates and renewal rent growth will continue to be a boost to performance. Again, markets heading into next year with higher occupancy rates and lower supply will fare better because household formation will not need to be as robust to maintain performance. If job growth outperforms, concession burn off could help effective rents bounce back, but that was supposed to be the story for 2025, and it didn't materialize the way we thought.
Absorption: This will come down to the economy and job growth. The challenges in the single-family market will help keep rental housing demand high on a relative scale, but overall household formation will be tested. Absorption will sometimes moderate simply because there are fewer new units delivered to the market. The concern for 2026 is more on the demand side due to the labor market.
Nanayakkara-Skillington: Heading into 2026, NAHB expects multifamily starts to be effectively flat due to a stronger than expected 2025. We expect construction starts for apartments and other multifamily development in 2025 to total just above 400,000 units.
Parsons: I hate to be “that guy,” but ... it depends on the economy. If the job market holds up even decently well, I think we'll see occupancy recover as supply drops off—allowing concessions to mostly burn off and pushing up rent growth into a more normal range, and maybe even more. But if the recent slowdown in hiring becomes a pattern or, worse, devolves into layoffs, that will obviously prolong the apartment recovery. Apartments tend to have a high floor in downturns compared with other sectors, but they certainly aren't fully immune to the effects of an economic slowdown.
Whitaker: Our current forecast suggests U.S. market-rate apartment rents will grow 2.3% in 2026, occupancy will be 95.2%, and 358,000 units will deliver. That said, it's worth noting that this forecast is based on data up through July. We've recently seen a tangible slowdown in key demand drivers, such as weak job growth and declining consumer sentiment. As such, the next forecast (releasing in early October) may show a slight downgrade in rent growth and occupancy versus the current set of expectations.
Which markets are positioned for the strongest growth, and where do you expect the greatest challenges?
Denton: I think it really comes down to occupancy rates and supply on the way. Those with lower occupancy rates and/or elevated levels of supply still on the way will continue to be tested more than others. Concessions will still be prevalent and at a higher value in order to mitigate vacancy rising in submarkets with supply challenges. There are locations in the country where two months free is still very common.
Generally, markets on the coasts or in the Midwest look more positive on a relative scale once again next year. Many of the markets in the Southeast and Southwest will start 2026 in negative growth territory for new leases and occupancy rates below 93%. Those are the ones where I’m concerned that the struggles will carry over for another year.
Nanayakkara-Skillington: Multifamily markets show a split between metros positioned for growth and those likely to face near-term challenges. On the growth side, Sun Belt and Southeastern metros such as Dallas-Fort Worth, Miami, Houston, and Orlando, Florida, remain strong due to steady job creation, in-migration, and relatively affordable housing compared with coastal hubs. Certain smaller Northeastern and Midwestern markets such as Columbus, Ohio, and Chicago are also showing resilience supported by tight inventory and affordability spillovers. In addition, affordable rental properties in suburban submarkets are benefiting from affordability pressures, as renters priced out of homeownership or new luxury developments seek more cost-effective options.
The biggest headwinds are in metros facing oversupply or demand tied to unstable downtown office cores. Heavy deliveries across parts of the Sun Belt and gateway cities such as New York City have driven vacancy rates higher, while bubble-risk indicators point to affordability mismatches in some coastal markets. Downtown submarkets dependent on office workers also remain vulnerable given uneven return-to-office trends. Overall, markets with strong population and job inflows but a controlled pipeline are best positioned for resilience, while those with excess supply, weak affordability, or valuation risk may struggle in the near term.
Parsons: We'll likely see another year where lower-supplied markets do well, and I also think we'll see some of the healthier higher-supplied markets start to separate themselves from the pack. Looking at higher demand where supply is dropping off fastest, and that includes Houston and Dallas, possibly the Carolinas, and Nashville, Tennessee, as well.
Whitaker: The forecast shows rents in large, low-supply coastal markets will likely see rents accelerate faster than the national average in 2026. Among this group of markets is San Francisco, San Jose, and Orange County, California, and Seattle. Some other office-heavy central business district markets (e.g., Chicago and Philadelphia) could also be included in that group.
Outside of those markets, there are some limited-supply Midwest and Rust Belt markets, such as Kansas City, Missouri; Columbus; Cincinnati; and Pittsburgh, that are expected to also see rents grow faster than the national average.
Finally, Sun Belt metros where lots of new supply is delivering are expected to trail the broader country. Though there will be fewer deliveries than 2024 and 2025, the volume of properties still working through lease-up will likely keep rent growth muted. San Antonio; Austin, Texas; Phoenix; and Jacksonville and Orlando, Florida, are among this group of markets (alongside Denver, which isn't technically Sun Belt but still exhibits many of the above parameters).
How are interest rates, capital markets, and construction costs shaping investment activity and the development pipeline?
Denton: Based on conversations with clients, it is still incredibly difficult to make the math work whether it’s for acquisitions or development. With revenue growth closer to flat and the threat of more inflation, it seems the capital market side of the business will still be challenging in 2026.
Parsons: High rates obviously create a hurdle for apartment starts, and modest cuts help but probably won't really move the needle. Construction costs have been steady, and the most recent National Multifamily Housing Council survey says most developers expect more of the same over the next six months. The real needle mover for starts is rents. Lease-up rents haven't moved up in three-plus years, so it's tough for most new deals to pencil out until the recent wave of lease-ups reach stabilization, burn off concessions, and notch even some modest rent bumps.
Whitaker: Investment appetite remains robust for multifamily product, especially as capital continues to allocate away from some more traditional vehicles, such as office properties. And it appears that we're on the cusp of at least a few more rate cuts from the Fed, so that could help spur a little more investment activity.
With that in mind, there doesn't seem to be any expectation of large-scale distressed sales (though certainly some product-specific distress could further emerge in 2026), and there remains a lower-than-usual appetite on the sellers' side of the equation. So ultimately there may be some increase in investment activity in the next 12-plus months, but we may not see as substantial of an increase as some had prognosticated a few years back.
How are household formation, migration, and affordability pressures in the for-sale market influencing multifamily demand?
Denton: The single-family market remains out of reach for most people, even with mortgage rates recently trending lower. Many of the recent mortgage applications are for refinances from peak rates rather than for new purchases. Many of the challenges the owner market has faced in the last couple of years will persist in 2026. That trend might help keep renter demand higher, but it is ultimately bad for the economy and job creation.
The challenges in the single-family market have direct and indirect impacts to job growth and migration, which weighs on the cautious outlook for markets that rely on those factors for absorption. Markets like Phoenix, Dallas, Austin, and Atlanta rely on strong migration to fill units, and I think that has been part of the challenge the last couple of years.
Nanayakkara-Skillington: Household formation, migration patterns, and affordability pressures in the for-sale housing market are all serving as key tailwinds for multifamily demand. New household formation remains elevated in many regions, fueled by younger cohorts entering the rental market and by in-migration to fast-growing metros in the Sun Belt and Southeast. This inflow is particularly important for suburban submarkets, where demand for more affordable rental options has been rising steadily. Migration trends are reinforcing these dynamics, as workers and families relocate from higher-cost coastal cities to more affordable metros, increasing pressure on local rental markets.
At the same time, affordability constraints in the for-sale market—driven by high home prices, elevated mortgage rates, and limited inventory—are keeping more would-be buyers in the rental market for longer. This has extended rental tenures and shifted demand toward multifamily units, especially in the affordable segments of the multifamily market. As a result, multifamily demand is being supported on multiple fronts: household growth, population inflows to lower-cost regions, and affordability barriers that continue to lock many households out of homeownership.
Parsons: The Census data on household formation and migration lags what we see in the private sector apartment demand data. Renter household formation, as measured by absorption, is moderating but still well above normal.
A weak home buyer market likely keeps renters renting longer, though I think we tend to give it too much credit for trends in the rental market. You may rent longer, yes, but maybe not at the same property—especially if you're unhappy where you are and have better options. Renters have a lot of options today.
Whitaker: The Harvard Joint Center for Housing Studies put out some excellent research in its "State of the Nation's Housing" report, which covered the difference in current household formation trends quite well. To summarize their work alongside some supporting Census data, nationwide household formation is cooling from the past few years (which were much higher than usual). And the household formation that is materializing is overwhelmingly skewed toward renter-occupied households, which also captures the current sluggishness within the for-sale market.
Similarly, migration is normalizing from its early 2020s decade peak. But the states that were gaining population even prior to 2020 continues to capture most of the net migration while states such as New York, California, and Illinois continue to lose residents (though at a slower pace than seen the past few years).
Ultimately, it looks as though current for-sale market fundamentals are boosting rental housing demand, though it's important to note that increasing rental housing demand isn't exclusively due to the for-sale market.
What role could housing policies or regulations play in the sector next year, and what under-the-radar risks should the industry be watching?
Denton: Transparency for renters is not going away. Expect to see more of a push for the all-in price of a lease to be prominently displayed, inclusive of specific concessions and mandatory fees. Not at the end of the search and application process, but at the beginning of the journey. The days of “up to” for concessions, “starting at” for rents, and lack of detailed mandatory fees will become a thing of the past in our industry.
Nanayakkara-Skillington: Housing policy and regulation could play a meaningful role in shaping multifamily dynamics over the next year, particularly as affordability pressures remain front and center. Expanded local and state-level incentives for new construction—such as zoning reform, density bonuses, or tax abatements—could help ease supply bottlenecks, especially in high-demand markets. At the federal level, Fannie Mae and Freddie Mac’s multifamily lending caps, combined with affordability targets, will continue to steer capital toward workforce and affordable housing segments. In parallel, efforts to accelerate office-to-residential conversions could open new opportunities in urban submarkets, though the economics of conversions remain highly variable.
Beyond policy shifts, several under-the-radar risks bear watching. Construction costs, while moderating, could reaccelerate if labor shortages persist, affecting development feasibility. Insurance costs are becoming a hidden drag, particularly in coastal and climate-vulnerable regions where premiums are rising sharply. Finally, demographic shifts, such as slower household formation if the labor market weakens, could soften demand in markets that currently look resilient. These factors suggest that while policy support may improve supply conditions in some places, there are significant risks that could be headwinds for the multifamily outlook.
Parsons: Regulatory risk is an always-growing factor at the local and state level. Massachusetts has taken steps toward a ballot measure to reenact rent control, which its voters banned in a 1990s ballot measure after experiencing its many ill effects. But 30-plus years is a long time, and memories are short, despite an abundance of academic research showing how the state's rent-controlled cities saw reduced crime and improved building maintenance once rent control was banned.
On a national level, I'm curious to see if and when the administration moves forward in declaring a national housing emergency—and what that could mean for increased housing production. That could be a rare bipartisan needle mover. Secretary Bessent said that could happen this fall, but we haven't seen it yet.
What else is on your watch list regarding the multifamily industry as we finish out 2025?
Denton: Labor market data has had accuracy challenges due to underlying survey methodologies. It becomes more problematic during inflection points, which we are likely at. The fourth quarter is typically a seasonally slow quarter for multifamily by its nature, but monitoring the results of rents and occupancy rates to see any unusual weakness is something I’m monitoring. Throughout my career, performance in the multifamily market tends to tell you what is really happening in the economy, which will be important when giving guidance on current conditions and next year’s outlook.
Nanayakkara-Skillington: A few key themes are worth watching in the next few months include the number of units under construction and the volume of completions, which will test demand strength. Markets that can absorb new supply without major concessions will enter 2026 in a stronger position, while those struggling with rising vacancy rates may see downward pressure on rents. Another theme to watch is shifts in renter preferences—such as demand for suburban locations, more affordable units, or amenities tied to hybrid work. At the same time, policy interventions—from rent control debates to zoning reform—could either relieve or heighten pressure depending on the market. Taken together, these factors suggest the multifamily industry will be balancing healthy underlying demand with real challenges around supply absorption, financing, and operating costs as it heads into 2026.
Parsons: We're in the seasonally slow leasing season right now. So, barring an unexpectedly large shift in demand or rent, all eyes are on the early spring leasing months at this point.
Whitaker: Personally, I'm curious to see what happens with the broader economy in 2026. It's tough to make out a clean narrative among economic trends right now. There are headwinds (e.g., soft labor market, tepid consumer sentiment, broader uncertainty) that can rightfully be pointed to as concerns for the coming few months. But on the other hand, some other macro fundamentals (e.g., strong GDP growth, consumer spending remains solid, and continued wage growth) suggest that there are tailwinds out there to consider as well.