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A construction boom in the United States is driving down rents and providing a variety of benefits to renters.
Record construction activity since the pandemic has increased the supply of vacant properties, boosting inventory available to renters: The number of multifamily homes completed in June was the highest in the past 50 years, according to online real estate marketplace Zillow Group.
Landlords have taken notice and are starting to offer additional rent concessions (discounts, incentives, perks) like a few weeks of free rent or free parking to attract new tenants.
Nationwide, about one-third of landlords, or 33.2%, offered at least one rent reduction in July, up from 25.4% last year, according to a Zillow survey.
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Meanwhile, the median asking price for all-bedroom apartments fell in July for the first time since 2020, according to real estate website Redfin.
According to Redfin data, the average rent for a studio or one-bedroom apartment fell 0.1% to $1,498 per month, while two-bedroom apartments fell 0.3% to $1,730 and apartments with three or more bedrooms fell 2% to $2,010.
Chen Chao, who leads Redfin’s economics team, said rents remain high because prices soared during the pandemic. But now, rent growth is leveling off, which he said could be “good news for renters.”
Sunbelt states lead the trend
According to Redfin, urban areas in Florida and Texas, two Sun Belt states that have seen a surge in new apartment construction since the pandemic, have seen rents fall sharply as vacancies increase.
For example, the average rent in Austin, Texas, fell to $1,458 in July, down 16.9% from a year ago, according to Redfin. The company noted that this was the largest drop among all other metro areas analyzed in the national study.
The average rental price in Jacksonville, Florida, fell 14.3% over the same period to $1,465, according to Redfin.
Comparing statewide, the average rent in Texas is $1,950, according to Zillow, while the average rent in Florida is $2,500.
According to Zillow, 45 of the 50 largest U.S. metropolitan areas are seeing an increase in rent reductions from the previous year.
According to Zillow data, Jacksonville, Florida, saw the largest annual increase in the share of rentals offering discounts, where discounts increased by 17 percentage points, followed by Charlotte, North Carolina (up 15.7 percentage points), Raleigh, North Carolina (up 14.7 percentage points), Atlanta (up 14.5 percentage points) and Austin, Texas (up 14.1 percentage points).
How rising wages will affect rental costs
Orphée Divongay, a senior economist on Zillow’s economic research team, said wage growth and rent increases have historically gone hand in hand.
He explained that a tight labor market can predict a tight housing market.
The labor market is shrinking as the number of job seekers exceeds the number of job openings. Nonfarm payrolls rose by just 114,000 in July, down from 179,000 in June, according to the Bureau of Labor Statistics. The unemployment rate jumped to 4.3%, the highest since October 2021.
“Shortly rising wages will help support demand for housing,” DiBongi said. “As the labor market eases, we expect the rental market to continue to ease as well.”
Zhao said wages were up 4 to 5 percent year-on-year. “That’s a good thing. It means rents are actually falling compared to wages. Wages are rising more than rents.”
To be sure, wage growth has been slowing: Wages and salaries for the 12 months ending in June 2024 increased 5.1% in June, compared with 4.7% a year ago, according to the Bureau of Labor Statistics.
According to the Indeed Hiring Lab Institute, wage growth peaked at 9.3% in January 2022 before slowing to 3.1% by mid-June, returning to pre-pandemic wage levels.
