The multifamily housing market is facing a severe and potentially long-lasting supply shortage that could reshape the industry, according to Jason Yarusi, Managing Member of Yarusi Holdings, who warns that construction constraints are creating a widening gap between supply and demand.
“We need something on the cusp of, in this decade, 15 million units, and we’re not going to hit that threshold,” Yarusi says, pointing to multiple factors constraining new development. This shortfall, he argues, is creating both challenges and opportunities in the multifamily sector.
According to Yarusi, several factors are combining to restrict new housing supply. “We had the first time in really ’23-’24 where we actually met the year amount of units we need. But we quickly retracted from that as interest rates went up and labor costs went up, and then supply materials were hard to come by,” he explains.
This pullback in construction has created what Yarusi sees as a self-reinforcing cycle, where limited supply makes existing properties more valuable, but also makes it harder for renters to transition to homeownership.
The supply constraints are having significant effects on existing multifamily properties. “That’s going to continue to make the existing units that much more valuable and continue to put stress on renters,” Yarusi says, “because renters can’t jump out, especially where rates are today, to go buy a single family house or move out of this.”
In response to these conditions, Yarusi’s firm has adapted its investment approach. “We’ve been really active buying projects that we feel we’re getting at very strong bases,” he explains. “They’re cash flow into day one. And they’ve been operations where the ownership groups have held them for a long time.”
This strategy focuses on properties with immediate cash flow potential rather than speculative development. “Nothing’s easy,” Yarusi acknowledges, “but we see a very straightforward business plan where we can go and just add marketing, put in just the right property management system, really identify what’s missing.”
The current interest rate environment is adding another layer of complexity to the supply shortage. “If you had to be a betting man, right, we will hope that within 12 months we’ll see some shifts in the interest rates,” Yarusi says. “However, we’ve had that narrative for now a year and a half. We keep going from five or six rate cuts to two rate cuts potentially.”
Given these market conditions, Yarusi’s firm has developed a specific approach to navigating the supply-constrained environment. They focus on workforce housing, particularly garden-style apartment buildings built between 1975 and 2005-2010, where they can implement operational improvements without relying on new construction.
“We manage about 30% of assets here out of our office,” Yarusi explains, describing their hands-on approach to property management. This direct involvement allows them to maximize the value of existing properties in a market where new supply remains constrained.
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