Multifamily year-over-year vacancy dropped for the first time in 17 quarters, year-over-year rents are higher and trending better, especially in the hardest-hit markets, and new supply is at a 26-quarter low. Things are getting better, and the development pipeline is visible far enough out that we know new supply will continue to shrink. So, for those hoping for a big multifamily upswing, attention (and worry?) turns to renter demand: Can it be sustained? Anyone can cite general risks - slower job growth, inflation, less immigration - that might be meaningful headwinds, but for investors, Peter Linneman's answer to "what actually drives multifamily demand" is much more helpful… and specific.

Demand, in his framework, comes down to two things: the size of the renter-age population and access to a down payment. Everything else — rental preferences, roommate arrangements, interest rate sensitivity — moves the needle only at the margins.

The biggest, most predictable driver is the raw count of people in their renter years. Linneman tracks this by mapping birth cohorts from 20-plus years ago forward to their early-to-mid-30s, the years when renting is most common. That population is still climbing, but only modestly, and it peaks in 2028. The rise is gentle, and the renter population stays generally flat into the early 2030s. Linneman contrasts it with the sharp post-World War II baby boom, describing the current run as "pretty plateau-like.” The falloff arrives later than the 2028 peak implies, in the early-to-mid 2030s, as the front of that cohort ages past its renting years. The next three years read well on this metric, and Linneman's concern is what investors will do with that.

Renters stop renting when they buy, and buying requires immediate cash for a down payment and ongoing income for monthly debt service. Down payment access, more than monthly affordability, is what has historically moved people between renting and owning. Linneman points to two periods in recent history when ownership spiked. The first was 2001 to 2006, when down payment requirements on many loans fell from 10-20% to zero or close to it, and 2020-2021, when stimulus payments and pandemic-era savings put a wave of down payment money into younger households' hands, joined by an unusual number of older Americans dying earlier than they otherwise would have and passing on savings sooner. Both periods ended. Lending standards tightened to 20-25% with heavy documentation after 2006, and spending and mortality patterns returned to normal once the pandemic eased.

Still, propensity to rent can shift with secular trends sometimes, like how long people are living with their parents, which is a lot longer than it was. You can call this an affordability problem, but some of this is cultural, Linneman says. He points to a generational change in the stigma attached to living at home as an adult — a status he describes as carrying real social cost in his own generation, much less today. The parent's home has also changed. It's roughly 40% larger than it was a generation ago, with finished basements, separate entrances and multiple bedrooms that make staying home more comfortable for everyone involved. Adult children living at home is both a drag on absorption and a latent source of demand as those children eventually move out and create their own households.

Set against that demand picture, the supply side is simple and favorable, and Linneman doesn't see that changing soon. Multifamily starts are near their lowest levels since 2020, and the drop is concentrated almost entirely in market-rate units.

For real estate investors, the practical takeaway is that the supply tailwind behind multifamily right now is about as safe a bet as you can find in this industry. Deliveries are down, starts are down, construction costs are high. Demand is the riskier factor. Renter-age population growth still has a couple of years of runway before the 2028 peak, and high down payments and mortgage rates are keeping would-be buyers in the renter pool. Both are current conditions rather than permanent ones. Underwriting that runs past 2030 should assume a thinner renter pool and a lower barrier to ownership than the one supporting today's absorption, and any real loosening in down payment requirements is the event to watch, since that is what has historically pulled renters out.

Before the elevator, the practical limit on a building’s height wasn’t engineering. It was human patience. Few people wanted to climb more than five or six flights of stairs, and the highest floors, today’s penthouses, were generally the least desirable.

The elevator reversed that. Higher floors offered more light, less noise and better views. The most inconvenient space became the most expensive.

Elisha Otis did not invent the elevator. Freight hoists had been around for centuries. What he solved was the part that kept people from stepping into one.

In 1854, Otis stood on a raised platform at New York’s Crystal Palace and instructed an assistant to cut the supporting rope. The platform dropped a few inches before his safety brake caught it. Three years later, the first Otis passenger elevator was installed in the E.V. Haughwout Building, a five-story department store on Broadway.

The real estate breakthrough came in 1870. The Equitable Life Assurance Building at 120 Broadway became the first office building to use passenger elevators. It was only seven stories tall, but its two steam-powered “vertical cars” changed the economics of the upper floors. Offices that once would have been discounted because of the long climb could now command high rents.

Chicago took the next step. The Home Insurance Building, completed in 1885, combined vertical transportation with metal-frame construction. At ten stories, it is generally credited as the world’s first skyscraper.

The car’s effect on cities is easy to see in highways, suburbs and parking lots. The elevator’s effect is just as profound, but we rarely notice it because the machinery disappears inside the building. Without it, there are no penthouses, office towers or familiar downtown skylines.

The car made more land accessible. The elevator made the same land more valuable.

Link: https://old.skyscraper.org/tenandtaller/nw.php

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