A new phase for multifamily: What investors need to know now

Multifamily market rent growth is poised for tailwinds as WDIP evaluates opportunities across the country, three macro-level dynamics stand out as key forces shaping the investment landscape: tighter financing conditions, rising construction costs, and future supply constraints. Together, they’re creating a compelling setup for long-term rent growth despite short-term challenges.

Tighter financing conditions slow new multifamily development

Higher interest rates and a more selective construction lending environment have taken a visible toll on new multifamily development. Despite rallying briefly in December 2024, construction starts dropped significantly through 2024 as developers recalibrated underwriting models and project feasibility.

The impact is a thinner pipeline of new units coming to market, particularly in higher-cost MSAs where deals are harder to pencil. While this can feel like a headwind today, it’s setting up future supply-demand imbalances that are likely to benefit existing assets.

Tariffs bring new uncertainty to construction costs.

The Trump administration’s announcement of a 10 percent baseline tariff on all imports and higher targeted duties on some of the country’s biggest trading partners has caused concern for many developers. Tariffs on key construction materials are adding another layer of complexity to development projects. Higher material costs increase project budgets and create additional uncertainty in underwriting. These conditions are likely to contribute to delays, cancellations, or cost overruns in new multifamily developments. Additionally, rising labor costs further compound the challenges facing developers. A tight labor market, increased wages, and ongoing skilled labor shortages are driving up construction expenses, making it even more difficult to bring projects to completion on time and within budget.

For projects currently in pre-development or early stages, these factors pose real underwriting risks. Delays, cancellations, and cost overruns are becoming more common, further limiting the pace of new multifamily deliveries. At WDIP, we’re closely monitoring these pressures as we evaluate where capital can be most effective, favoring assets with in-place cash flow and clear demand tailwinds.

Supply constraints fuel potential rent growth

While some MSAs are still digesting a wave of new multifamily supply, absorption is underway—and in many cases, moving faster than expected. Over the next 12 to 18 months, we anticipate a steady tightening of available inventory, especially in markets with strong population and job growth.

That dynamic creates a clear setup for future rent growth. As new supply slows and demand remains resilient, multifamily rents are poised to re-accelerate, particularly in well-located, professionally managed assets.

Strategic implications for investors

For WDIP investors, these trends highlight the importance of strategic positioning. A disciplined investment approach that prioritizes well-located, high-demand assets will be essential to navigating the evolving market. It’s not just about chasing yield; it’s about understanding where the market is headed, how capital markets are evolving, and where real opportunities for value creation lie. Additionally, understanding the impact of financing conditions and construction costs on project feasibility will be critical for making informed decisions.

While market dynamics are shifting, multifamily real estate remains a resilient asset class with strong long-term fundamentals. By staying ahead of these trends, investors can identify opportunities and manage risk effectively.

WDIP remains focused on partnering with sponsors and operators who can navigate complexity, and we are well-positioned to capitalize on dislocations that emerge along the way.

Reach out to our team today to discuss how WDIP is deploying capital in today’s multifamily market and how we can help you with your next project.