Dr. Peter Linneman on AI Myths, the Future of Multifamily Housing & the Shrinking Federal Workforce

Nobody appreciates that the federal workforce has shrunk by 9%.

We're in the industrial real estate market and all of a sudden we're seeing a huge tick up in interest and activity right now.

Anything that creates productivity creates wealth.

The spread between, you know, average rent versus average mortgages is as wide as I've seen it in my lifetime.

Single family is the best friend multifamily has. In a demand sense. All right.

Welcome back to another episode of the Invest Like a Billionaire podcast. Very excited for today's guest, Dr. Peter Linneman of Linneman Associates. Very excited to have you on today. Thanks for coming on.

Well, thank you for having me. It's a pleasure to be here.

Here we are, a brand new year. 2026 is coming in strong and can't wait to get your insights on, on on what you see coming. So, let's jump right in. You know, tell us, you know, do we have any clarity on GDP growth and what we expect? I know last time I heard you talk, it was like a lot of question marks. Where are we at?

Well, and that was about 2.5 months ago, I was saying a lot of question marks. I think a lot of those question marks are answered may be a little strong because that makes the world sound more defined than it ever is. Right. But let me start with one thing that I think is important for understanding this year that's coming. Nobody appreciates that the federal workforce has shrunk by 9%. Wow. 2025. In 2020, there was a lot of noise about Doge early in the year, and then it disappeared, right, as a thing. And meanwhile, if you watch the employment data for the federal government, it just kept ticking down and down and down. Why do I think that's important? And I don't think it's probably over yet. But think about it, 9%. Reagan couldn't do it. Ford couldn't do it. Nixon couldn't do it. Clinton couldn't do it. You know, you got the point. 9%. It's stunning. If I'd have said to you or anybody a year ago, when we talk a year from now, the federal workforce is going to be 9% lower.

Yeah, that's extraordinary.

You'd have had me committed, and yet it hasn't made the news. Why is that important? I think it's important for two reasons that will show over time. One is that those people will go from handing around money and creating impediments to growth to creating value as private sector workers. A few of them end up in state and local government, but you get the point. Is some number like almost 300,000 workers are going to go from shuffling around and being impediments to creating. And that's a lot of activity that gets enhanced. So that's one reason. And the second is, since there are not as many impediments, and by the way, on top of that, there was a lot of deregulation in a lot of areas. It doesn't impact immediately, but we're going to see some of those impacts on businesses, especially a lot of the environmental, a lot of the green, a lot of other kind of things that were mandated. You're going to see those showing up with money that was being spent on lobbying and compliance being spent on creating growth.

So this is more of a long-term thing, medium and long-term though. Short-term, those people that are laid off may not be spending as much money, right? So it's actually maybe a little bit of a negative short-term, but long-term. Yeah, I definitely agree.

We live for the long term. We live for the long term. So I think you're right. In the short term, in 2025, it was a modest a modest negative. Now, they got severance, and they got this, and some of them already got private sector jobs. So it wasn't as big as if they all just— it's not like they're all just sitting on the street, right?

Yeah.

So I think that's an important thing. Another important thing that's set up for this year that occurred last year is the interest rate cuts that I had been screaming for well before Trump got elected. Occurred in the last part of 2024, and then they sat on their hands again until the last part of 2025. They have cut the interest rates within 50 basis points of where they should be, in my opinion. They're still about 50 basis points too high. How do I get there? Inflation is— if you take out shelter, which is largely owner equivalent rent, which nobody pays, If you take that out and focus only on the things people buy, inflation is about 2.2, 2.3%, which is where it's been basically in the 30 years prior to the pandemic. So we've been back now for 2 years to that 2.2, 2.3%. If you think the interest rate on the short end should be 50 to 75 over that, You're talking 2.75 to 3, and they've got the rate at 3.5 to 3.75. Call it an effective rate of 3.6. You can see there's cushion for another 50. But what I don't think people fully appreciate is you're going to get appointees during this year, and they're not going to be hacks. They're going to have gone to the same schools. They're going to have taught at the same universities or worked at the same banks. But they have a different view of the world. And the different view of the world is, how much do you want to weigh off labor market slowdown versus a threat of inflation? And remember, I just said 50 to 75 basis points over is, quote, where it should be. He'll pick people who believe it should be 25 to 50 over, and they really believe it. And I, you know, I can have an argument about that, but you can't say they're crazy, right? So what I think you're going to see more back-ended again in the year is 100 basis points cut on the short end. That will help auto a lot. That will help other manufacturing a lot, which has been flat for 3 years, okay? And you're going to see activity occurring there as those short rates come down. Because think of auto, two-thirds of all consumers that buy autos borrow. And as that rate comes down, they're going to do more. Businesses that use lines of credit secured by inventory and receivable, their cost of debt is short-term. And as that comes down, it helps. And so I think you're going to see a lot of activity. You're going to see 100 basis points by year-end on the short end. The other thing it helps is that it will rotate people out of sitting on their hands and getting a very attractive real rate of return by doing nothing.

Meaning bonds?

Well, not even bonds, notes. And money markets.

Yeah, yeah.

And it was like money for nothing, right? You took no risk and you had no liquidity risk. Well, as you get rid of that return down there, where's the only place you can get return? You gotta rotate into longer and riskier. And real estate is in the longer riskier business. And you're gonna see capital as we move through the— it's already begun over the last 6 months. You've seen it starting, but you're gonna see much more of it as we go through this year. As people rotate out of the short end into longer and riskier, you're gonna see capital flow. When capital flows, real estate prices improve.

So, sounds like some— you're expecting some good solid GDP growth this year, and I definitely can foresee that. You know, we're in the industrial real estate market, and all of a sudden, we're seeing a huge tick up in interest and activity right now. And I don't know if that's people getting rid of fear or finally, you know, clarity coming, but something is, you know, it's all the signs of a lot of strength happening here.

So, I think you hit it. Dead on. It was a very unusual year in that it looks like GDP in 2025 grew pretty well. It grew like probably going to end up around 2.3%. Okay, not, not amazing, not bad. The second quarter and the third quarter were very high, but when you look at it, a year is going to be okay, like 2.3%. The employment was very anemic. In its growth. And by the way, so, and people didn't lose jobs. So unemployment claims stayed very low. So if you had a job, you kept it, but we didn't hire a lot of people by normal standards, but GDP grew. And you could say, what is that, AI that suddenly increased productivity? It's not AI that suddenly increased productivity. I think you hit it. People got hesitant because they didn't know what was going to happen in the Middle East. They didn't know what was going to happen with Iran. They didn't know what was going to happen with tariffs. And so people hesitated. People being businesses. Consumers stayed active, but businesses hesitated. And so, you know, did you really need to hire that person right away? No, I'll wait until there was a little more clarity. Well, I think we have a bit more clarity as the rates got cut, as we saw the Middle East didn't blow up, as we've seen tariffs— the effective tariff is only about half of what we thought it would be. That slows the economy, but only about half as much as we thought it would. So what I think you're going to see— It's what I call the beatings will continue until morale improves. And you think about it this way, you know, take just, this is a trivial way to think about it. Imagine I was working for you, I retired, you were going to replace me, all the uncertainties out there, and you sit there going, why don't we wait a few months and just see? But you're not going to cut back output. You're going to look to the people who are there and say, We gotta keep doing, and the beatings will continue until morale improves, right? Well, of course you can do that for 3 months, you can do that for 6 months, you can probably do that for a year, but you can't do that forever. Eventually you have to replace me, especially if you're gonna grow. So I think what we're gonna see in 2026 is the beatings stop, and you've gotta bring laborers in to match that GDP growth we had. As well as the GDP growth we're going to get. So you're going to get the job growth you would expect from normal GDP growth, plus some of the job growth we didn't get from the GDP growth that happened last year. And so I think it'll be fairly robust that way.

So we're seeing some huge changes here. And this is a great segue into AI and the AI boom. You know, you and I were around in the internet boom. And to me, this is like déjà vu.

I was around in the wheel boom. That's how old I am. I remember when people were really excited about this guy Mel who had found a wheel and—

But this is déjà vu. I mean, here we have something that is truly game-changing for real. We're seeing a stock market that's kind of gone berserk and manic. And we're seeing a lot of questions about employment. And there's no question in my mind, at least, that AI is going to accelerate GDP growth. It's going to accelerate productivity. There seems no question about that. It also seems like it's going to affect white-collar job growth. And are there going to be as many white-collar jobs around? And I don't think we're seeing that. So it's kind of a short-term negative again. Short-term negative, long-term positive. And we're also seeing a huge mismatch in the labor market. We're already seeing this with Ford coming out and saying, we need 10,000 mechanics we can't find, and there's a million mechanics. And we've always been sending our kids to college and focusing on white-collar employment. And you've seen white-collar employment outstrip non-white-collar employment for decades. All of a sudden, it feels like a reversal. So, talk about the labor much. Talk about AI and its effect on GDP and the labor market.

So you just are picking the easy topics today, right? So, okay, I think there's several things that are important to remember. Think of when electricity happened. They did what Niagara Falls and electrified—

I wasn't around then.

Yeah, I was. I remember lighting up the street in Buffalo, right? And electric was amazing. They had electric lights suddenly, you know, and you could— but how long did it take electrification?

Yeah, long, long time.

Long, long time. By the way, in some places it happened, but in general it took a long time. So these things that are whiz-bang, and electricity I'd say is a whiz-bang thing, right? But it took a long time to effectuate. And even if it effectuates 3 times faster, a third of a long time is still a long time, right? So that's one thing to bear in mind. Second, of course jobs are gonna be eliminated. And the example I always think about is 125 years ago, guys like us were walking behind a plow horse. And you can imagine somebody coming up and saying, "By the way, we've now got tractors." We don't need all you guys to do that. Where we have 12 of you, we need 1 tractor driver. And we all go, my God, 11 people. And the economy was mostly rural. What the hell's gonna happen to them? And the answer is we freed them up to do more productive things. And can you imagine going up to a young person walking behind a plow horse and say, your grandchildren are going to have jobs that pay beyond any imagination. In terms of purchasing power working for Disney Animation? And they'd go, first of all, what's Disney? And secondly, what's animation? And our minds aren't big enough to figure it out, what can happen. The thing that is interesting about technology, anything that creates productivity creates wealth. The wealth creates that people will use that wealth. Okay, so somebody's going to capture all those gains, and when they capture those gains, what's going to happen is they're going to spend them or invest it. So imagine the wealth associated with what you were saying, the income associated. It's not going to be buried. It's either going to be invested, and if it's invested, there's a whole lot of opportunities, and if it's spent, there's a whole lot of opportunities, and we don't even know what it's going to be. And those jobs are the ones we can't imagine, right? We can see the ones we're going to lose, and you're right, there's a timing. The mismatch issue is dead on in that, as in any time an economy changes, the skills have to evolve. The beautiful thing about a market economy, and we're not a perfect market economy, is you know what happened? Wages adjust. And as wages adjust, signals are sent and people change. So if we suddenly see a whole lot of white-collar jobs disappear, you're not going to have as many people going to university studying nonsense. But— At the same time, the wages of those mechanics will be going up and it will attract. And does it happen instantly? No, but it does happen. And I think it's less of a problem than people think. My last thought on AI is the following. Over the last 125 years, the US is average. About 1.5% annual productivity growth. Okay? Not for every individual, but on average. Okay? Some didn't get any more productive at all. Some got less productive, but as a group, about 1.5%. That 1.5% was driven by electrification, sanitation, health advances, computers, internal combustion, just go on and on and on of all the things, the internet, and all of those things were only able to generate about 1.5% a year productivity growth. My gut, I can't prove this, is that AI is going to have definitely productivity effects. I think that's primarily where we're going to get the next 1.5% for the next 20 years. I think that's more likely than our 1.5% becomes— and I'm just making up a number— 3%, because resources are going to get shifted around, right? And we've already climbed some of those mountains. And the only reason I say that is, my God, electrification, computers, chips, medical advances, all those things, 1.5% a year, right? And so, it's not like I'm skeptical on AI, quite the opposite. I'm skeptical that it will supercharge our aggregate productivity growth, as opposed to, thank God we got it, or we might not get our 1.5%. Now, I can see us going to 1.8. I'm not trying to be precise. And think about it, if for 30 years we got 1.8 instead of 1.5, in any one year you couldn't tell. But you do that for 20 or 30 years, that's a lot of wealth that got created and a lot of progress that got created. And if your gut is right, I just end by saying, if your gut is right, and it really does take it from 1.5% to 3%, we'll be swimming in well-offness.

To me, it feels just like the internet 30 years ago, and there was all the same questions of, you know, it's going to cause— it's going to remove— I mean, all the call centers in the world disappeared, right, as people self-serviced on the— using a web page and all this thing. All these jobs began to disappear, but it wasn't overnight. And it produced, I think, 30 years of 1.5% productivity growth, right? For 30 years, it didn't accelerate. We didn't have 6% GDP growth or even 5%, really. And it was longer term. And so, but it does— I think we are going to see softness in the labor market for a while because, I mean, we didn't hire a copywriter last year. We were going to hire a copywriter. We don't need a copywriter anymore. So, I do think it's going to affect the economy. Of the labor market, but it's, it's less dramatic. And, and I think you're— I, I totally buy in what you're saying about long, long-term growth, long-term GDP growth from productivity enhancement.

I mean, I'm old enough to remember when there were typing pools. I was young, right? Right. And people stopped hiring typists for the typing pool and they went to their own with a Selectric. And now you don't— you haven't had that for, what, 20 years or some number? And now, and now. And so yes, they got eliminated, but somehow, where are they working? They're working in hospitals, they're working in entertainment, they're working. There is a problem though that you hit on when, and there's nothing magic about the time I'm about to describe. When I graduated from high school in 1969, basically 20% of American kids went to university. And some of them flunked out even with the Vietnam War. Some of them flunked out, right? And I think the number today is like 58%. That's a challenge. That's a challenge. I'm not saying it should be 20. There's nothing magic about it. 58% sounds high. And I'll tell you why it sounds high. It sounds high because if you think IQ is not perfect, but if you think of IQ, it centers at 100 with 50% above, 50% below, and if you're sending 58%, you're sending a lot who are below the 100 IQ, which the institution is not set up, at least originally, to process. And that's one of the big problems over the years with universities. They've got a model designed to process Albert Einsteins, um, or the 20%, if you will. And they didn't adjust very well except great inflation and stupid majors as they went to 58%, but they grabbed the money. And so there is a problem there. There is a problem there. Yeah.

And as you pointed out, I think wages will start to change to reflect that. And you're already seeing that in mechanics getting $120,000 a year.

Good for them.

So, we're going to jump over to real estate in just a second. I'm going to throw it over to Ben, but last question is global economics. So, we live in a global economy, right? Our economy is completely interconnected. And while America has very— we are an island in a lot of ways, we're not also. And so, we've seen in Asia, especially China, their growth is in trouble. They're having demographic— problems, long-term problems there. They're having a housing market crash that is very much— it's very much like our great financial crisis, but they're trying to manipulate it into place. But what's happening is we're seeing a huge, huge slow growth coming out of China. And the same in Europe, we're seeing very similar things where we're seeing demographic challenges, but also then GDP, very slow growth GDP-wise. And of course, they're hampered by very high impediments with bureaucracies and other things. But we're seeing kind of America as the lone GDP growth beacon. And I think we're seeing less demand, foreign demand coming to America and other kinds of impacts. Just talk about the global economy and how it's going to affect us. At home?

Okay, so I think it's easy. Western Europe, hopeless. My friend Sam Zell used to say, they have great twisty roads, they have great castles, they have wonderful vistas, but they don't grow. And by the way, Western Europe, off the top of your head, name 5 great companies created in the last 15 years in Western Europe. You can't do it. I'm not saying there aren't any, but it's really hard, right? If I said, name 5 great companies created in the last 15 years in the US, which is about the same population, right, as the EU, you could spend an hour doing it off the top of your head. You say, oh yeah, what about, oh yeah, what about, right? Public and private. That's a problem. And they're largely socialist economies. They're overregulated. The green movement destroyed whatever growth they had. They always had the socialist tinge in those countries, but then they got socialist and extreme greenism. And remember, the Green Parties over there don't believe there should be growth. You know, what people forget is when they look at some of the environmental regulations that the Greens have put on, particularly over there, they say, don't they realize that you won't get any growth? And the answer is, that's why they're doing it. Right.

They want the population to go down, right? They want to go back to—

They want the population to go down. They want no growth. They want everybody walking and on bicycle. They really want that. And so people keep looking at it as an unintended consequence. No, it is an absolute intended consequence. And so you've got these coalitions that even what they call right center parties are really socialist. They're just not as socialist as the left center. And then you have the Greens floating around. So they have no growth prospect as far as I can figure out. Their politics are as bad as ours or worse. And they have no growth prospects. That's bad. Eastern Europe, a bit better. They saw communism and didn't like it. China, is it surprising that a country that has reverted in terms of its communistic impulses has seen more struggles? And there's no doubt Xi has done a lot of great things, but, you know, he's also moved back more state-controlled company. Getting capital, et cetera, et cetera. So it's not surprising. I always have said about China, China's progress in the, what, last 30 years is pretty amazing. All you have to do is go and look. I went in 1986, unrecognizable versus when I went. There were no cars, everybody had black bicycles and so forth, okay? But what I tell people is the really amazing thing about China is not what they've achieved in the last 30 years, It's what they didn't achieve in the previous 100. So while we were building railroads, they hadn't. While we were building high-rises, they hadn't. While we were building shopping centers, they hadn't. You can go right through it, right? So, and so they're playing catch-up. What people forget is in this year, I'm willing to make a bet on the following, and I'll even trust Chinese statistics for it, which are always questionable. On the upside. The typical Chinese family will see a lower increase in their standard of living than the typical family in the U.S. And you say, well, that can't be. They're going to have a 5% increase in their GDP, and we're going to have a 2.5%, right? And you're saying, okay, so they're going to double ours. Do it in dollars. Do it in dollars. All right, would you rather have 5% of my wealth or 2.5% of Elon Musk's wealth? And people forget that the thing you multiply it by, right? And people don't care about percentages, they care about dollars, right? And when you look at absolute dollars, the fact that they're only growing twice as fast as us and their population is about 4 times us, means they're not getting as many increases in dollars as we get. And we keep pulling far— it's just math. It's like, you know, Sister Joseph's freshman math class in high school, right? Don't get fooled by percentages. So China's got troubles. Middle East actually could have a pretty good period here. There actually is a chance we might be in a marginal golden age for the Middle East. Still too soon to say, but it's a small economy. Who else is there? Japan. Japan kind of stumbles around. And in fact, to that end, Bob Fraser, people will ask me from time to time, Well, don't you think people are going to take their money and invest elsewhere because, gee, they don't like Trump? Okay. You know, where are you going to go? Where are you going to go? The French don't like Macron. The Germans don't like Merz. The British don't like Starmer. You can just go right across the thing. So pick your poison. And at the end of the day, I'd go and you set it up perfectly. You set it perfectly. I'd go to the place that I believe in growth. And are we growing as much as we could? Probably not, but we're growing and we have more opportunities as a result. And we have good institutions and we have big markets. So of course people— so I said to somebody yesterday who was making this point, I said, okay, you just won that, what was it, 1.4 you won a $1 billion lottery and you took it in lump sum and you paid your taxes. And at the end of it, I think you were left with $450 million free after taxes. And I said, how much are you going to invest in China? How much are you going to take to France? How much are you going to take to Russia?

Exactly.

How much are you going to take? And by the way, the answer is basically, except for maybe buying a home in South France or something, right? The answer is you're not going to take any of it pretty much anywhere than the US. And then I said, "Okay, you just won that lottery in China and your money's free to go. Where are you going to invest? You just won that lottery in England and your money is free to go wherever. Where are you going to go?" And the answer is the bulk of it's going to end up over here.

Right. Peter, let's shift over to real estate with the second half of this conversation. And you kind of hit it on a little bit. Beginning, just with your expectation for the capital markets, if we start to see stronger GDP growth and consumer business confidence coming back, and we also see interest rates come down. I mean, we're already seeing spreads tighten quite a bit on long-term rates, and there's been a lot of capital on the sidelines, but transaction volumes seem to be up. What are your expectations from the capital markets, you know, maybe in the short term and then, you know, long-term for, for real estate? And I'm specifically thinking multifamily housing, but across the board.

Yeah. In the next 5 minutes, not a lot. So if you're talking that short, not a lot over this year, you're going to see a lot of improvement. Remember, multifamily transaction volumes are still below average. They're not as much below average as they were 2 years ago. Or a year ago, but they're still below average. That means money is not flowing average. Industrial, you're not seeing— you could say we may not get back to the record flows you saw, but we're below historic norms in flows to industrial. We'll get back to normal and we'll go above normal. That's the whole point of normal, is you kind of gravitate around there. So capital is going to move into these areas. Over the coming year and 2 years because they're not going to get a money-for-nothing return on the short end anymore. They're going to actually have to take risk if they want a return. I mean, think about— suppose this is just a hypothetical— suppose the Fed set the short-term interest rate at 52%. Okay. All right. And the inflation rate is 2%. Who in their right mind would do anything other than put money into short-term, right? Nobody in their right mind would. Okay, now the Fed cuts it from 52% to 42%. Still, I'm staying short. How about 32? I'm still staying short. 22, 12. Okay, it's only as it gets down to some level I go, okay, I want return and I have to go. So you're going to see a lot of rotation. There is a lot of money out there. This isn't like 2008, 2009 where there was no money. There's a lot of money out there. It's just sitting— when we say that sitting on the sidelines, what do we really mean? It's sitting in cash. It's sitting uncommitted. It's collecting the money for nothing. When will it come off the sidelines? When it doesn't pay to be on the sideline. So you're going to see that, which will be good for cap rates. My work has shown clearly that the determinant of cap rates is not— are not interest rates. The determinant of cap rates is, does money flow? And no matter what the reason, and I've looked since 1972, no matter what the reason, if money doesn't flow, cap rates go up. And no matter what the reason, if money flows, no matter what interest rates are, if money flows, cap rates go down. And we've been in a period where money hasn't flowed. I mean, you know that. And is it surprising if money didn't flow? Forget the reason why it didn't flow. If it doesn't flow, you're gonna have cap rates up. And that's what's happened. It's softened in the last, what, 5 months of last year? Gee, what happened in the last part of last year? More rate cuts. Gee, isn't that surprising? Now, did all the money come off the sideline? No, but some of it, and incrementally and incrementally. And I think the handwriting's on the wall. And so you're going to see more money come off. Also, the supply pipelines. This is almost biblical, right? You just lived through a biblical period, right? Which was— it wasn't 7 years of plenty. But industrial especially, but also apartments, you had like 2.5 years of plenty, and then you've had 2.5 years of famine, right? And it really is like the story of Joseph, you know, when talking to his brothers, except his numbers were 7. We're faster in our cycles. And I think we are about to enter another 2.5-year period of plenty. By the way, you know there's a period of famine out there somewhere. I don't know if it's 4 years, but you know there'll be plenty out there again at some point. That was why my friend Sam Zell used that phrase back in the dark days of 1990 when there wasn't money, "Stay alive till '95," and all he was really saying was rent and occupancy will improve if you can hang on. And more to the point, there'll be a plenty period rather than a famine period if you can just hang on. And his spirit was right.

Yeah. So, with housing, I mean, you obviously have been a proponent and a voice of saying there is a housing shortage. In the near term, there's It doesn't feel like that, right? There's a lot of supply, there's negative rent growth in a lot of markets. And I would also say that's partly why capital markets are reticent to come back in because the perceived growth isn't necessarily there right now. Where do you see that imbalance starting to come back into equilibrium, specifically in housing, and when does rent growth become a part of the market again?

So, great question. The real shortage is in single-family, which is two-thirds of all housing. That's where the real shortage is, big shortage. That has helped the multifamily because people have to stay longer renting. And you take the shortage of housing and the super low interest rates people locked in, And the single-family is the best friend multifamily has, right? In a demand sense. That will continue because the shortage is not going to go away. And the interest rates being locked in go away every time somebody dies or every time somebody sells their home because they got a big promotion and they have to go. But it It takes time. So it's really this, the single-family side. The multifamily, you can find pockets of tightness and you can find pockets of real looseness, like downtown Nashville or downtown Denver. But there are also places that are in decent balance in multi. They're not wonderful. The thing I think people forget, and I've got a number of projects leasing up at this point. The thing I think people forget is concessions don't last forever. And you only have— when do you give away your product? You only give away your product when there's a lot of product available. As soon as markets come back into any kind of balance, why would you give your product away, right? And if you look historically, I can't have strong data on this because you can't find it, If I go back and think about historically, you go from giving away a month or two concession for 2 years, and then suddenly, like 7 months later, there are no concessions. Why? Because the space got filled. And we're only talking about a couple of percent, right? We're not talking about filling 30%. We're only talking about getting the market occupancy let's say from 93% to 94%, that's enough to get rid of concessions. But as long as it stays at 93%, you're gonna have concessions because that sloppiness is there. So I think by the end of this year, you're going to see a lot of concessions burning off in a lot of markets, not in the softest markets. They'll go into early next year. And by the way, if you ask me which would I rather have, concessions burn off or 2% rent increase, I'll take concessions burning off.

Right.

Right. And I think that's where you're going to see it happen faster. And I think you're going to see it in lots of suburban markets mid to late. You're already seeing some of it, but you're going to see a lot happening mid to late this year because there's not as much being built.

What do you see for mid to long-term multifamily demand? Because to your point on single-family housing, the spread between average rent versus average mortgages is as wide as I've seen it in my lifetime. And it doesn't feel like the single-family housing shortage is going to get meaningfully solved anytime soon. In most markets. So does that become kind of a long-term, you know, driver in, you know, for multifamily aside from other factors? And how did those play or does that market reset at some point and pull out a significant amount of multifamily tenants?

I don't know how we get rid of a 3.5 million unit shortfall in Think about it. Even if we did it over a decade by building 350,000 more single-family homes every year for the next decade, which mathematically would be beyond what we would have normally built, it still takes a decade. And I just don't see NIMBYism allowing that to occur. And I think even capital markets have a hard time allowing that to occur. Why?

Right.

Because capital markets generally— now, we could get a crazy period, but generally, you know, capital markets tend to be conservative. Namely, they look at what goes on and they kind of underwrite what's going on. And then every once in a while, they lose their mind. Well, even if the capital markets lost their mind, take the housing bubble from 2002 to 2006. Even that, in 4 years, we only built 2 million more than we needed. So imagine you had a repeat play of that pace, and we built 2 million more than we needed in a 4-year period. We still have a million and a half shortfall, and 4 years have gone by. And then, you know, you're going to get an economic downturn somewhere along the line, and that will kind of stop it. And So I think it's become quasi-permanent. I don't know that the number, and it matters because housing is something people want. It's not like Bazooka Bubblegum. I'm probably showing my age. I mean, if there was a 3% shortage of Bazooka Bubblegum, I'm not sure bubblegum price would go out of sight because if they tried to make it out of sight, people would say, I'll do, another kind of gum or candy or, you know, a granola bar. What are you going to do? You need housing and people really want it. So the price really matters. The shortage, 3%, 3.5% doesn't sound big, but it's huge for something people want. If we had a 3.5% shortage of hearts, the price of hearts would really be high. Because I really want one to stay alive. Right. And a house is not as extreme as that, but we have a shortfall and it's going to be here for a long time. And it's a permanent or quasi-permanent feature of multifamily demand at this point. Hmm.

On the supply side of multifamily, do you see that picking back up pretty quickly here? You said, you know, kind of 2.5 years of plenty, 2.5 years of famine. And is that in reference to multifamily as well, or does that take a little bit longer from just the last overhang of the last cycle and pain of, you know, what's kind of happened the past couple of years?

Yeah, my models, for what they're worth, show that for most markets, multifamily has hit bottom. Mostly hit bottom probably May through September last year, depending on the market. And it's not obvious you've hit bottom until you're out of it, right? Because you're very tentative, and you're very— you know, you should be, right? Very tentative. And I think things hit bottom. Demand is solid. The problem has not been demand. The problem has been supply, right? When it would have really been— it's different than, say, 1990 or 1973 or 1981, where there was a supply problem and a demand problem, right? We haven't had a particular demand problem, aggregate. If you look at market absorption, market absorption in most markets is pretty good. It's just that the supply was even better. And that's where the softness came. Well, when that pipeline gets reduced, those markets can get healthy in a hurry. And remember, we're not talking about going from 50% occupied to 95%. We're talking about going 1 or 2 percentage points. It's all we're talking about between, quote, I can push rents and I'm full versus I can't push rents and I have to make concessions. It's, it's not linear, right? It's either there are units available or they're not. And, you know, you can't run— I don't think a market can run what, higher than 94, 95% in multifamily. It's very hard for a sustained period for a market to run higher than that just with turnover and obsolescence and so forth. So, you're not far off. And but people really forget it doesn't take much. There's a straw that broke the camel's back dimension to these things.

Let's zoom out, real big picture here, and one of the last questions of the day. But, you know, as we do, you know, look at demographics, and obviously we talked about, you know, everywhere outside of the US, declining pretty rapidly, but we're also seeing declines demographically in the US as well. And I believe just recently kind of triggered below the replacement number that we need to maintain population. And it, that could change. Obviously, we've seen that happen where there's an inflection point of baby boom, but If that doesn't happen, what does happen to, you know, housing demand over time? Because in effect, you know, you have declining demand. And does that happen, you know, pretty evenly? Does that happen, you know, in different pockets of the country? What does that look like if you zoom out 40, 50 years from now? What does it look like?

So I wrote a book about that. With Albert Ratner and Mike Roizen from Cleveland Clinic. And, you know, the breakthroughs medically and so forth that are happening, genetic and the GLP-1 drugs and so forth, how that could change. And so population isn't going to fall as much as people think. And in fact, there's another factor that we didn't write about, which is women are more having children later than having fewer children. And it looks like they're not having as many children because you look at them at 25 and they're not having as many children. You look at them at 28, not having as many children. But they're having them at quote ages that we used to think, what? You're having a child? You know, if a woman had a child, I'm not saying right or wrong, if a woman had a child at the age of 39, 40, 42, 2, everybody kind of said, "Oh, that was a surprise," right? Nobody says that's a surprise anymore. That's a plan. So, there was a recent study on US data that showed that completed pregnancy age, there's not a big drop in the number of children. It's just they've happened a lot later. Now, that has implications, but not quite the same. Look, we're going to have a growing population. Some combination of legal immigrants, illegal immigrants, births being only slightly below deaths, deaths being delayed, right? So you'll have— as long as you have positive population growth, you won't have this surplus of housing. You'll just have a reduction in how much housing gets produced. Right? If we lost half the population, like during the Black Plague, there'd be a housing excess, right? But that's not gonna happen. If instead of— what we've done is go from, instead of expanding at 1%, we're down to like 0.7% a year. Well, we still need more housing. If we kept building the amount of housing we needed for a 1% growth, we'd have way too much housing. But what's happened? The supply has actually gone overshoot on the downside. So we've seen our housing problem get more dire as population growth has slowed. And that's because people are adjusting in the other ways. Wow.

Well, Dr. Lindeman, this has been a real treat. We really appreciate you coming on and love your insights. We'll definitely be pointing people to, uh, your, your newsletter that you write, which is impressive. We both read that, read it before this, and, uh, really some great data. Um, we'll have you back in the future. So thank you so much for coming on.

My pleasure. Thank you for having me.

Thanks again to Dr. Peter Linneman for joining us today. One last thing before we go: on February 6th, iLab is teaming up with Aspen Funds to host a live 2026 Macroeconomic Outlook. It's a high-level, data-driven conversation about the risks and opportunities that could shape 2026. We've got a great group of speakers lined up: Belinda Roman, John Chang, and Jay Parsons, plus insights from Bob Fraser and myself. It's free, it's educational, and it's built around institutional quality data to help you understand what's coming and why it matters. Sign up using the link in the description below and hope to see you there.