EP#103 Joanna Zabriskie | The Case for Multifamily & SFR

Episode 103 of The Rent Roll podcast opens with Jay Parsons presenting eight data-driven slides examining rental housing fundamentals. The first major theme is the elongation of the American renting stage of life—30-year-olds reaching traditional adult milestones (marriage, homeownership, etc.) has declined for 40+ years across multiple housing cycles, not just since mortgage rates rose. Federal Reserve surveys show renters increasingly expect to remain in rental housing, with 20 percentage points fewer renters expecting to move within three years over the past 12 years.

The second theme addresses renter household formation, which has accelerated despite high mortgage rates—680,000 renter households were added last year with absorption now outpacing supply. Critically, Harvard Joint Center for Housing Studies data reveals that nearly all renter household formation over the past decade comes from households earning $75,000+, now representing one-third of all renters. This segment spends only 20% of income on rent and utilities, well below the 30% affordability threshold, meaning they are not rent-burdened and can absorb rent increases.

Supply dynamics constitute the third major theme. After the biggest apartment supply wave in a generation (driven by cheap debt, inflationary demand, and cap rate compression), completions peaked in 2024 and dropped significantly in 2025. Parsons argues this peak supply cycle is unlikely to repeat due to the unique convergence of factors required, and supply is now coming to manageable levels across the country, including Sunbelt markets. Vacancy rates have improved since March 2025 for the first time since 2021, marking a significant inflection point.

Rent recovery is beginning as vacancy improves. Effective rents (including concessions) bottomed in winter 2024-25 and have rebounded, approaching 1% growth with expectations to finish 2026 near 2% annual growth. This recovery is strongest in higher-supply markets where supply is now moderating.

Parsons addresses the capital markets challenges, noting that while interest rates remain elevated and cap rates tight, the previous cycle's success was largely driven by appreciation and cap rate compression rather than NOI growth. He argues the new environment requires focusing on NOI generation, execution, and longer hold periods rather than short-term value-add flips. He introduces the concept of "segmentation, not sectors"—emphasizing that bifurcation within markets and asset types will determine winners and losers, not sector-wide trends.

A critical trend is the flight to quality among both renters and capital. Apartment sales data indexed by submarket rent levels shows capital gravitating toward higher-rent, more desirable neighborhoods closer to jobs and amenities, where higher-income renters congregate. Lower-rent, working-class submarkets with older buildings and higher deferred maintenance face headwinds despite affordability.

In the follow-up interview, Joanna Zabriskie challenges misconceptions about who rents and why. Parsons emphasizes that market-rate, professionally managed rental housing (apartments and BTR) primarily houses households earning $75,000+ who choose renting for lifestyle reasons (flexibility, Gen Z preference for renting) or circumstance (affordability to buy). The average multifamily renter age is 38, indicating extended rental tenures. Younger cohorts show record rates of living with parents—representing pent-up demand that will eventually flow into rental housing as they establish independence.

On affordability, Parsons stresses bifurcation: the upper-income renter segment experiences improving affordability as rents normalize relative to income after the supply surge. The lower-income segment (<$30,000) faces severe rent burden (80% of income), but this segment isn't growing and doesn't occupy market-rate properties—it's primarily served by subsidized housing and scattered-site rentals.

The distress narrative is contextualized as concentrated in CMBS and CLO debt (small share of multifamily debt pool) rather than broadly systemic. Fannie and Freddie, representing half the debt pool, show non-performing loan rates around 0.55%, not elevated. Notably, debt funds are increasingly partnering with operators like BH to rehabilitate underperforming assets rather than forcing distressed sales, stabilizing values.

Transaction volume remains depressed relative to 2021-22 peaks, driven more by capital preferring debt-side positioning during fundamentals transition than by lack of multifamily belief. Parsons predicts capital will shift back to equity as fundamentals improve and renters/operators prove the resilience story.

In closing advice to investment committees, Parsons emphasizes segmentation analysis over sector analysis: success lies in identifying institutional-grade assets in desirable submarkets with strong operators, not in timing market bottoms or relying on appreciation. He frames the coming cycle as operations-driven rather than capital-appreciation-driven, requiring superior execution, asset management, and market selection rather than just riding favorable macro trends.