It’s always interesting when Willy Walker and Peter Linneman get together for their quarterly chats on the Walker Webcast. The July 7 episode wasn’t any exception, as Walker (Chairman and CEO of Walker & Dunlop) and Linneman (economist and principal of Linneman Associates) dove into issues including job growth, economic policy and the office sector.
However, the main focus of the Q2 2025 recap included housing, inflation . . . and more housing.
Rent Calculation, Fed Style
Linneman’s and Walker’s discussion delved into inflation—stripping away the owner-equivalent rent (OER), inflation has actually been 1.5%. But added to the overall inflation number has been actual residential rents. “Their rent calculation says that between August 2024 and May 2025, rents in America were up 8%,” Walker said. “You put forward in the (Linneman) Letter that anyone who owns apartments that were able to get 8% should call you.” “My phone has been silent,” Linneman said.
Then There is the EFFR . . .
One prediction Linneman made during the Q2 2024 Walker Webcast was that the Federal Reserve would make three cuts to the Effective Federal Funds Rate (EFFR) by the end of 2024. As it turns out, he was right.
His prediction for the end of 2025 was that the Fed would reduce the EFFR by 100 basis points. “Everyone thinks I’m crazy at this point,” he said. “They thought I was crazy last year.”
Construction, Numbers and Multifamily
Rate cuts led to inflation, which in turn led to construction in the multifamily space. Walker and Linneman referenced a recent RealPage report showing the absorption of close to 800,000 units against a delivery of 535,805 units.
At the other end are the challenges faced in building new product. Walker said the Linneman Letter pointed out that lumber costs are down, while gypsum and cement are at all-time highs.
Linneman acknowledged that he didn’t have a specific answer. However, “there is a lot of other construction occurring, between government buildings and data centers.” The “Build Back America” legislation also means more infrastructure improvements and ongoing demand for cement.
Additionally, “I believe we import about 22% of our cement from Canada and Mexico,” Linneman said. “From a trade policy standpoint, moving these supplies into the U.S. has had some issues as it relates to pricing.”
The upshot is that building material costs are about 1% above the inflation rate. Linneman said that the labor component also adds to the expense.
The Affordability Issue
There is still a lack of housing supply and types to feed the ongoing insatiable demand. Linneman and Walker discussed the Trump Administration’s examination of using federal lands to build affordable housing. “This would change the whole tenor of things,” Linneman observed. “They wouldn’t give that land to the county and state and say ‘you all go through your technical entitlement,’ they’d take it at the federal level and run with it.” The result would be that the process would end up in court, he added.
However, NIMBYism, housing underproduction and other factors mean that households are staying longer in single-family rentals and multifamily housing. Meanwhile, “They’ve talked that they want affordable housing, but the truth is, they really don’t,” Walker said. Houston and Los Angeles, Walker indicated that the former has done a great job of reducing homelessness because it has no strict zoning requirements to interfere with affordable housing construction. Los Angeles, not so much, due to land entitlement issues.
“Houston’s greatest asset, without a doubt, is affordable housing,” Linneman agreed. “All you have to do is copy their playbook.”
On-demand replays of the July 7 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.
The post Walker Webcast: Peter Linneman and Willy Walker Discuss Housing During the Q2 Recap appeared first on Connect CRE.
