The multifamily commercial real estate (CRE) sector entered 2025 facing both headwinds and opportunities. Insights from Moody’s CRE economists in their Q2 2025 CRE Quarterly Economic Briefing highlight that the broader economic backdrop is marked by slowing growth, muted consumer spending, and policy uncertainty. Yet, multifamily performance has shown relative resilience, positioning it uniquely among CRE asset classes.
While the national vacancy rate has ticked upward over the past two years, the first half of 2025 brought a pause to further deterioration. At 6.5 percent, vacancy levels remain manageable thanks to sustained rental demand supported by steady population growth. Asking rents continue to climb, reaching new highs above $1,900, signaling equilibrium in many markets despite supply pressures.
Affordable Housing at the Center of Multifamily Demand
The most critical theme emerging from the briefing is the role of affordable housing in stabilizing the sector. As presented by Lu Chen, Moody’s Director of Housing Research, affordability constraints are shaping tenant behavior and creating opportunities for borrowers who focus on workforce and affordable housing.
Newly constructed properties have been heavily concentrated in Class A segments due to higher profit margins and amenity-driven development. This has created an affordability gap. Class A vacancy rates have reached 8 percent, while rent premiums over Class B and C units have expanded to $700, nearly half the cost of average workforce housing rents.
This widening gap underscores the importance of affordable housing as the true stabilizer of multifamily performance. Mid-market and affordable units continue to see steady absorption, even as luxury product faces elevated vacancies. For borrowers, this points to a significant opportunity: properties that meet the needs of cost-conscious renters may be positioned to outperform, particularly in markets where affordability pressures are most acute.
Affordable housing supply has also grown meaningfully. Record levels of Low-Income Housing Tax Credit (LIHTC) product deliveries pushed sector vacancy modestly higher in recent quarters, to 2.8 percent, but this remains an extremely tight level compared with the broader market. Demand is reinforced by demographics, with nearly half of renters under age 30 and another quarter between 30 and 44, many of whom are priced out of Class A properties.
Policy support further strengthens this segment. Recent legislation made LIHTC and the New Market Tax Credit permanent while lowering the bond financing threshold for 4 percent LIHTC deals from 50 percent to 25 percent. These changes expand financing access for affordable and mixed-income projects, creating more opportunities for borrowers to enter or grow in this space.
Looking Ahead
The multifamily CRE sector sits at a critical juncture. Affordable housing is not only a stabilizer today but also the key to long-term sector growth. Demand remains strong, financing incentives are expanding, and demographics continue to align in favor of affordable units.
Our Takeaway
It appears that those borrowers who prioritize affordability, leverage new policy tools, and align with renter demand may be better positioned to weather short-term uncertainty and emerge stronger as the market stabilizes. Affordable housing will define the next cycle of multifamily performance.
The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.