The Multifamily Vacancy Rate is Rising

Here’s another one of those prediction posts. I recently received the information from the South Dakota Multifamily Housing Association, and multifamily vacancy is in line with what it is nationwide for Q2 2023 – 6.1%. Here’s the nationwide graph:

Good ol’ FRED, comes through with the data again. That vacancy number is happily low, but remember what it means – for every $100 annually you expect to receive in rent, you only get $93.90. That’s a significant chunk, and if you didn’t factor into your underwriting, you might be in the red.

Look back to the 2008 recession, vacancy went up to 11%. I’m not so worried about the number, just if it is rising or falling. As this number rises, it is usually a symptom of people not being able to pay their rent. It could also mean there is too much housing, but we know that there is still a huge demand for multifamily units, so it is more likely people not being able to pay the rent.

Lack of ability to pay rent might be from the fact that things are costing more and jobs are not keeping up with their salary to the workers. Of course, plenty of other factors are in play, but ticking up in vacancy is a worrisome finding. This will put pressure on the fancy class A apartments with all the amenities. People in distress will determine that they can live without the onsite gym and go to a class B apartment. Class B people might decide they can live in a less desirable area of town with some older fixtures and move into Class C. There’s not much lower to go after that.


  1. Look to Class C apartments as good investments. Put in a few updates and keep rent flat for a couple years. Factor this into your projections and you’ll do well.
  2. New multifamily startups will slow down. Developers are pinched by high interest rates and concern that they won’t be able to fill their units. Unless the location has a very strong job market, they will be hurting.
  3. Renovations will have less of an impact. These are always nice for tenants, but the rental price will be the most important for them right now. Money spent on upgrades probably is not going to be recouped for a few years.

Multifamily is and will remain to be a good investment. Keep a close eye on prices. They will start to fall as investors who bought with little meat on the bone, but were hoping for appreciation of rents now realize that they aren’t making the money they thought, and will look to cut losses.

Dr. Equity