📈 The rent crisis is getting worse. Here's why.

👋 Hello, Best Ever readers! Today’s Merriam-Webster Word of the Day is sumptuous. It means “extremely costly, rich, luxurious, or magnificent” — kind of like all that new supply from 2024 that prompted today’s Top Story.

In today’s newsletter, renters get squeezed, Dollar General gasses up, rent growth underdogs emerge, BTR surges, and more.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

⛽ Gassed Up: Dollar General is piloting fuel stations at 40 Alabama stores, transforming rural retail into convenience hubs. The move leverages large land parcels to increase revenue potential and customer loyalty in underserved markets.

🐶 Upstate Underdogs: Rochester and Syracuse lead markets positioned for outsized rent growth, with 2.2% and 2.1% projected home price increases, respectively. With home prices rising faster than rents, above-average rent growth is expected to follow.

🏘️ Suburban Shift: Apartment construction is shifting from dense metro cores to lower-density areas, with large metro core counties' market share dropping from 45.1% in 2016 to 35.5% in Q1 2025, driven by affordable housing needs, older renters preferring suburban living, and cheaper land costs.

🏗️ Trophy Hunt: CBRE predicts developers could return to speculative office construction by 2027, as Class-A vacancy could drop from 15% to 8.2%. Only 17 MSF are scheduled to deliver this year versus a 44 MSF average, creating severe trophy space shortages despite overall 20.4% vacancy rates.

🏭 Little Giants: Industrial rent growth is expected to split dramatically through 2029, with smaller markets like Louisville outperforming major hubs like Riverside due to balanced supply versus construction overhangs.

🏆 TOP STORY
THE RENT CRISIS IS GETTING WORSE. HERE’S WHY.

You may be tired of hearing about the affordability crisis. But the reality is … it’s getting worse. Roughly 22.6 million Americans now spend more than 30% of their income on rent, an all-time high. Developers completed 608,000 new units in 2024, but the renter population grew by 848,000 households. 

And here's the kicker: 65% of working-age renters can't cover basic living expenses after paying rent.

The problem is that all that (sumptuous) new construction targeted high earners. Apartments under $1,000 (inflation-adjusted) dropped 30% from 2013 to 2023, while units above $2,000 tripled to 9.1 million. New completions in late 2024 averaged $1,900 rent, far out of reach for most renters. Rents jumped 32% from 2019 to 2025, though growth finally cooled to 0.8% in Q1 2025.

Here's what's making things worse:

• Everyone's Getting Squeezed: Among renters earning under $30,000, 83% are rent-burdened with just $250 left monthly after paying rent, while 45% of middle-class earners ($45,000-$74,999) now face rent burdens compared to 22% in 2001.

• Florida and the West: These regions show the highest housing-induced financial instability, though Austin saw 22% rent drops from pandemic peaks due to massive supply increases.

• Everything Costs More: Electricity bills jumped 4.5% in 2024 while natural gas is projected to rise 80% in 2025, all while landlords battle higher insurance and construction costs.

• Washington's Not Helping: Trump is proposing 40% cuts to Section 8 vouchers and eliminating LIHEAP, which helped 6.7 million households pay energy bills this year.

Here’s where it gets interesting: The filtering theory says luxury construction eventually helps everyone as higher earners move up and free up cheaper units below. It works in theory — and in high-supply markets — but breaks down for people making little to no income who can't afford any rent. For investors, the sweet spot is oversupplied Sun Belt markets where massive construction created both filtering effects and rent declines, potentially offering value-add opportunities as pricing compresses.

THE BOTTOM LINE

“At some point, it's really not about rent being too high,” rental economist Jay Parsons wrote on LinkedIn this week. “Rent could be $100/month, and it'd still be unaffordable to hundreds of thousands of households. This is where subsidized affordable housing plays a critical role — and programs to boost employment/income can play an even bigger role.”

💰 CRE BY THE NUMBERS
THE BTR BOOM, STUDENT HOUSING WOES, AND MORE

🏗️ 64,200 

Roughly 64,200 build-to-rent units are under construction nationwide and scheduled for completion by 2027, according to RealPage, with the Sun Belt leading at 57% of total development. Phoenix dominates with 11,500 units, followed by Dallas and Houston.

🏠 -11% 

Student housing faces enrollment pressures as international student numbers dropped 11% YoY and a demographic cliff looms. Investors are becoming cautious, focusing only on sustained growth markets like major universities.

🔨 67% 

Construction firms are raising compensation to address labor shortages, with 67% increasing wages despite material price volatility and financing challenges. While 34% have delayed projects due to financing constraints, many remain optimistic about future growth prospects.

💰 $30 Billion 

Multifamily investment sales surged 35% to $30 billion in Q1 despite slowing rent growth. Investors are betting on long-term fundamentals as apartment deliveries peaked in March at 576,000 units, with future supply constraints expected to drive recovery.

🏘️ DEAL OF THE WEEK
RETURNING 50% OF INVESTOR CAPITAL IN 3 YEARS

Lee Yoder and the team at Threefold Real Estate Investing are increasing this property’s value by over $2 million and returning 50% of investor capital in just three years.

Here's how they’re doing it 👇

🏢 Property Details: This 96-unit Class C multifamily property was purchased in October 2023 in Lima, Ohio.

💸 Finances: The property was purchased for $7 million. The team raised $2.25 million in capital and secured a seller-financed loan for $5.68 million (81% LTV) with 4.12% interest-only rate for three years.

💼 Business Plan: The property was 16% vacant at the time of purchase. The team began renovating all vacant units immediately. To date, they have renovated 39 units at an average cost of $9,773 (total cost: $381,166). They also added new driveways and parking lots for each building (total cost: $149,500) and turned the office unit into an additional rental unit. There was an abandoned building in the back of the property that was previously used as a laundry facility, which they also brought back online for tenants.

• NOI for first six months: $31,182/month (value at a 7% cap rate: $5,345,000)

• NOI in the last six months: $49,999/month (value at a 7% cap rate: $8,571,000)

• Projected NOI in 2026: $53,500/month (value at a 7% cap rate: $9,171,000)

🍾 Results: Investors have received a quarterly distribution every quarter since purchase with an average of 8% ROI (9% for larger investors).

They plan to refinance in 2026 at a value of $9,171,000. Their new loan at 75% LTV will be $6,878,000, which will allow them to pay off their seller-financed loan ($5.68 million) and return 50% of their investors' capital ($1,125,000 of $2,250,000) in just three years.

💪 Takeaways/Learnings: "The biggest challenge was overcoming 16% vacancy upon takeover with a new team that we inherited,” said Lee. “Also, this property is two hours from our home base, so managing this new team was difficult.

“We have found that purchasing in rural areas (beyond tertiary markets) makes for very challenging management, but is well worth the challenge because you can get in at a much lower basis compared to the more competitive markets. The rent isn't much different, so the returns are exceptional.”

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