Most investors chase the obvious metrics when evaluating multifamily markets. Population growth gets all the attention, job creation makes headlines, but there’s a third factor that needs to be thoroughly evaluated when selecting a market in which to invest.
After analyzing dozens of markets nationwide (and investing in 6+ distinct regions of the US, both actively and passively), we’ve identified three economic indicators that we care about the most: population growth, job growth, and supply constraints.
- Population growth ranks first for obvious reasons—more residents mean more demand for apartments. Many investors stop their analysis here.
- Job growth follows closely as our second priority. It’s the engine that drives population movement, but the type of jobs matters enormously. We favor markets with diverse employment bases spanning healthcare, education, technology, and manufacturing rather than single-industry towns that collapse when one sector struggles.
- Supply constraints represent the overlooked third leg of this equation. We’ve watched markets with stellar population and job growth deliver disappointing returns because developers flooded them with new inventory. More apartments mean more options for your prospective residents – it’s great that your market is business-friendly, pro-development, etc, until that translates to significant new supply that destroys market rent growth.
The magic happens when you find markets with solid population and job growth paired with minimal new supply – this gap between demand and inventory drives sustained rent growth above national averages.
Take New Hampshire – the northeast’s highest population growth state (despite being surrounded by declining markets like MA/VT/NY/CT/etc) – while it doesn’t match Texas or Florida’s population growth rates, it also doesn’t suffer from their oversupply issues.
New Hampshire currently sits 23,000 housing units short of equilibrium, creating a supply-constrained environment where rents continue climbing.
The lesson: Don’t just follow growth. Follow constrained growth.