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The Supply Cliff Is Here (Finally)
For the last three years, we've written about the coming supply cliff in multifamily housing. Many economists (and hopeful sponsors) called it too early as a seemingly never-ending wave of new supply continued to dilute the rental markets.
Well, it finally happened. After months of speculation, the May 2026 multifamily housing starts collapsed by a whopping 41.6% in a single month according to the U.S. Census Bureau, hitting a 15-year low. That's roughly 40% down from the 2022 peak. We have all been patiently waiting for the massive over-supply to finally subside---and it is here.
The data now clearly shows the end of new supply in this cycle is real, and the drop-off is dramatic. The new supply pipeline (which has been steadily slowing) is about to empty out. By 2027 and 2028, new deliveries will be severely constrained. Less supply, all else being equal, means one thing: rent growth. Something we have not seen in the Sunbelt markets in several years now. Despite all the new supply, renter demand has remained extremely resilient. Q1 2026 posted the strongest net absorption on record! For the first time since 2021, demand actually outpaced new supply. That is a meaningful statistic. As we mentioned many times, the supply glut has been mainly concentrated in the high growth Sunbelt markets. Overall, the country still faces a structural housing deficit of roughly 4 million units. People need places to live, and affordability constraints will continue to push renter demand.
Despite the long-term positive outlook for multifamily housing, most investors remain paralyzed. The latest Burns Fear & Greed Index shows a remarkable 71% of investors are frozen – neither increasing nor decreasing their exposure. It's a classic case of waiting for perfect clarity before being willing to jump back in. While the majority sits on the sidelines, the window of opportunity seems to be wide open.
At CALCAP, our focus remains squarely on Class B workforce housing. Why? Because these renters have nowhere else to go. They represent the most durable segment of demand, a market reality that doesn't waver with market sentiment or interest rate fears. We are currently seeing opportunities in our core Sunbelt markets that we haven't seen since the early days of this firm. Sellers are motivated, debt is available and competitive for clean deals, and the basis we're acquiring at today will look very different when the supply cliff fully takes hold in 18 months.
While others are frozen by fear or greed, we're actively deploying capital into markets where the fundamentals are strong. The supply cliff is here, and for disciplined investors, it looks a lot like an opportunity.
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