The recent construction boom in the United States has led to a surplus of available rental properties, resulting in lower rents and various benefits for renters. According to Zillow Group, the completion of more multifamily units in June than in any other month in nearly 50 years has significantly increased the inventory of empty units in the market. This surplus of rental units has prompted landlords to offer rent concessions, such as discounts and perks, to attract new tenants. The data shows that about one-third of landlords across the U.S. offered at least one rent concession in July, marking a significant increase from the previous year.
As a result of the increased supply of rental units, the median asking rent prices for apartments in one- to three-bedroom units have experienced a decline. This is the first time such a decline has been observed since 2020, according to Redfin, a real estate brokerage site. The median asking rent prices for studio or one-bedroom apartments fell by 0.1% to $1,498 a month, while two-bedroom apartments decreased by 0.3% to $1,730. Units with three bedrooms or more saw a 2% decline in rent prices to $2,010, based on Redfin data. Despite the decline, rent prices remain relatively high due to the significant price increases observed during the pandemic.
The impact of the construction boom and increased inventory of rental units varies across different regions in the United States. Metro areas in Florida and Texas, particularly Sun Belt states that have seen a surge in newly constructed apartments since the pandemic, have experienced substantial rent price declines. For example, the median asking rent price in Austin, Texas, dropped to $1,458 in July, representing a 16.9% decline from the previous year. Similarly, Jacksonville, Florida, witnessed a 14.3% decline in median rent prices to $1,465 during the same period. These declines have been attributed to the influx of new rental units in these markets, making them more competitive and driving down prices.
Historically, wage growth and rent growth have been closely linked, as the state of the labor market can influence the housing market. According to Zillow’s Economic Research team, the recent ease in the labor market, with a surplus of job candidates compared to available jobs, has impacted rent growth. As nonfarm payrolls increased by just 114,000 in July, and the unemployment rate rose to 4.3%, the rental market is expected to continue to loosen. The slowdown in wage growth, with wages and salaries increasing by 5.1% for the 12-month period ending in June 2024, has also played a role in shaping the rental market.
While rent prices have experienced declines in certain markets due to increased construction activity and rental inventory, the long-term outlook remains uncertain. The impact of factors such as wage growth, labor market conditions, and economic stability will continue to influence rent prices in the future. Renters may benefit from the current trend of lower rents and increased rent concessions, but it is essential to monitor these changes and stay informed about market dynamics to make informed rental decisions.
Overall, the construction boom in the U.S. has created a shift in the rental market, leading to lower rent prices and increased availability of rental units. Renters stand to benefit from this trend, as landlords offer concessions to attract tenants in a competitive market. However, the interplay between the labor market, wage growth, and economic conditions will ultimately shape the future trajectory of rent prices in the U.S. It is crucial for renters to stay informed and adapt to changing market conditions to make the most of these developments.