Why do increased interest rates drive multifamily housing starts? Increase in rental demand?
Yes. Absolutely increasing the demand for rentals. When we lived in Georgia a few of the larger national housing companies started building 300~500 home neighborhoods and before they finished their first home an investment company came in and bought up each and every home to turn into rental properties. We locked in on our new home in Spokane last June at 2.76%. If we were to go out today and get that same loan it would be at 5.7% in this area, according to Zillow today. That would easily increase the monthly mortgage payment by $300~$400. With the way inflation is biting into every part of our lives right now, having that much higher of a mortgage payment for some people would price them out of the market. With interest rates moving into the 6% or 7% or higher range by the end of this year along with housing prices still increasing, it will force people who were hoping to be able to go out and buy a home to continue renting although they may want to upgrade to a newer rental.
Don’t forget that every developer who is building multifamily residential units is more than likely leveraging their project. Interest rates will ultimately affect the viability of those projects.