The challenges of high home prices and rising interest rates that confront millennials anxious to start their own households could force them to remain renters for longer and create a demand for apartments that could overwhelm supply, according to a new report from real estate investment firm Marcus & Millichap.

People in the 28 to 34-year old age group, who traditionally transitioned to home ownership at this age, are likely to be forced to remain renters because of the conditions in the single-family market, the analysis found. Even though the pace of home buying in early 2023 slowed to its lowest rate since the pandemic, this did not result in price relief, as available listings remained low and owners with low-rate mortgages decided to hang on to their homes instead of moving up the property ladder.

By obstructing the natural flow of mid-30 year olds from renting to home-ownership, the supply of available apartments for rent to a younger cohort could be squeezed as well, the report notes. "These dynamics showcase the imperative need for new apartments to be built, which is in line with the record number of rental units expected to be completed in 2023," it states. Even with the new construction coming online, developers will need to keep pace with demand over the long term.