The surge in construction activity in the United States is having a significant impact on the rental market, with lower rents and various benefits now being offered to renters. The record-setting construction boom, particularly in the multifamily housing sector, has led to a surplus of available units, giving renters more options to choose from. Landlords are responding to this increased supply by offering rent concessions, such as discounts, incentives, and perks, to attract tenants.
Increased Construction Activity
According to Zillow Group, the online real estate marketplace, more multifamily units were completed in June than in any month in nearly 50 years. This surge in construction activity can be attributed to the high demand for housing following the pandemic, as well as low interest rates and favorable market conditions. As a result, there are now more empty units available for rent, leading to a decrease in rental prices and an increase in renter benefits.
Landlords across the country are taking notice of this shift in the rental market and are adapting to the changing landscape. In July, about one-third (33.2%) of landlords offered at least one rent concession, up from about one-quarter (25.4%) the previous year. These concessions can include free weeks of rent, free parking, or other incentives to attract new tenants. This trend indicates a shift in the rental market towards a more tenant-friendly environment.
Decline in Median Asking Rent Prices
The increase in available rental units and the introduction of rent concessions have contributed to a decrease in median asking rent prices across the country. According to Redfin, a real estate brokerage site, the median asking rent prices for apartments in one- to three-bedroom units fell in July for the first time since 2020. The median asking rent price for a studio or one-bedroom apartment dropped by 0.1% to $1,498 a month, while two-bedroom apartments decreased by 0.3% to $1,730, and units with three bedrooms or more were down by 2% to $2,010.
While rents are still relatively high due to the significant price increases during the pandemic, rent growth has now flattened, which is good news for renters. Chen Zhao, who leads the economics team at Redfin, emphasized that the slowdown in rent growth is a positive development for renters, as it indicates a more stable and potentially more affordable rental market in the future.
Trends in Sun Belt States
Metro areas in Sun Belt states like Florida and Texas are leading the trend of declining rent prices and increased rent concessions. These states have seen a high number of newly built apartments since the pandemic, which has contributed to the increase in available rental units and the subsequent decrease in rent prices. For example, the median asking rent price in Austin, Texas, fell to $1,458 in July, marking a 16.9% decline from the previous year. Similarly, Jacksonville, Florida, experienced a 14.3% decline in median asking rent price to $1,465 during the same period.
The trend of declining rent prices and increased rent concessions is not limited to specific states but is evident across the country. Zillow data indicates that rent concessions are up from a year ago in 45 of the 50 largest metro areas in the U.S. The annual increase in the share of rental listings offering concessions is particularly notable in cities like Jacksonville, Florida, Charlotte, North Carolina, Raleigh, North Carolina, Atlanta, and Austin, Texas.
Impact of Wage Growth on Rent Costs
Historically, wage growth and rent growth have been closely linked, with changes in one often influencing the other. Orphe Divounguy, a senior economist with Zillow’s Economic Research team, explained that the tightness of the labor market can be predictive of the tightness of the housing market. As the labor market has eased in recent months, with more candidates than available jobs, this has had implications for the rental market.
Wage growth plays a significant role in determining rent costs, as rising wages can support increased housing demand. According to Zhao, wages are currently growing at a rate of 4% to 5% year over year, which is a positive sign for renters. The fact that wages are increasing more rapidly than rents means that rents are becoming more affordable relative to income levels, providing relief to renters.
However, wage growth has slowed in recent months, following a peak of 9.3% in January 2022. Wages and salaries increased by 5.1% for the 12-month period ending in June 2024, according to the Bureau of Labor Statistics. Despite this slowdown, wage growth remains above pre-pandemic levels, offering some stability and support to the rental market.
In conclusion, the construction boom in the U.S. is reshaping the rental market, with lower rents and increased benefits now being offered to renters. The surplus of available units, coupled with rent concessions and declining median rent prices, is creating a more tenant-friendly environment for renters across the country. Additionally, the impact of wage growth on rent costs highlights the interconnected nature of the housing and labor markets, with rising wages potentially leading to more affordable housing options for renters.