How Shifting Labor Trends Impact the Multifamily Sector

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Widely available debt was driving investors to buy multifamily properties in commercial real estate as a hedge against record inflation of 7.5% going into 2022. According to Freddie Mac, fixed mortgage rates recently rose to an average of 3.69%—levels not seen since the beginning of 2020. Inflation has given no indication of letting up, so it still makes sense to lock capital investments into lower interest rates, but with the announcement of increased rates came reports of a decrease in mortgage applications over the last week as many first-time buyers have been priced out of the market.

"The stronger-than-expected employment report for January, and rising inflation, which accelerated further in January, are keeping investors bullish on the economy," said George Ratiu, manager of economic research at Realtor.com.

Pandemic Impact on Jobs

The early stages of the pandemic would have driven many out of the workforce and into more affordable housing situations, such as shared family homes. During the early stages of the COVID-19 pandemic, shutdowns pushed younger generations to move back in with parents at a rate unseen since The Great Depression. The lingering effects of the pandemic continue to drive families to rent in order to save on rising costs for essentials like groceries and other products where prices are being driven by supply chain issues that are linked to ongoing labor shortages.

After the shutdown, it has been a slow return to a pre-pandemic labor force as people hesitate to risk their health for low-wage jobs especially when competing with more appealing remote work jobs. Employees have the upper hand in hiring negotiations right now and one of the most important benefits they want to keep around even after the pandemic restrictions are lifted is to continue working remotely from home. As a result, two-thirds of renters that work from home are looking for larger housing with room for a home office as people are able to make remote work a more long-term arrangement.

The Great Resignation Shows Clear Shifts

Some were initially referring to the changes in the labor market as The Great Resignation under the assumption people simply did not want to work, so some state governors chose to end pandemic unemployment support early after facing pressure to bring people back to the workforce. However, this was largely unsuccessful because it failed to address the reality that industries like healthcare were facing employee burnout and restaurant or retail workers were facing harassment on the job over mask mandates driving them to quit en masse. Due to these factors, employees from these industries have been driving The Great Reshuffle which more accurately describes the current shift in the labor market to seek out better pay, benefits, and work-life balance.

The increases in pay are not keeping up with inflation and rent increases, which is one of the main reasons people chose to move during the pandemic. People are also moving for their new dream jobs or to enjoy the freedom that comes with working remotely from anywhere which creates growth from job migration.

Even as rates go up and the purchase of homes may slow down, building homes has struggled to keep up with demand especially with rising costs of materials and supply chain deficiencies that have postponed construction. Housing development is expected to accelerate except in major markets which will remain undersupplied. The current lack of housing supply also compounds the rental increases already happening from inflation and increases in pay for renters. Property sales have followed dramatic increases of soaring rent prices due to a 70% jump in investment volume from 2020 with an increased focus on allocating those funds to multifamily housing.

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