The U.S. has experienced a construction boom that has had a significant impact on rental markets across the country. As a result of record-construction activity since the pandemic, the supply of empty units has increased, leading to more apartment inventory being available for renters. Multifamily units completion reached a peak in June, surpassing any other month in almost half a century, according to data from Zillow Group, an online real estate marketplace. This surge in construction has not gone unnoticed by landlords, who are now offering rent concessions to attract new tenants. These concessions can range from discounts to incentives like free weeks of rent or free parking facilities. The latest data from Zillow shows that around 33.2% of landlords in the U.S. offered at least one rent concession in July, a notable increase from the previous year’s 25.4%.
The increase in available rental units has also led to a shift in asking rent prices for apartments in various sizes. According to data from Redfin, a real estate brokerage site, the median asking rent prices for apartments with one to three bedrooms decreased in July for the first time since 2020. The median rent price for studios or one-bedroom apartments dropped by 0.1% to $1,498 per month, while two-bedroom apartments saw a 0.3% decline to $1,730. Similarly, units with three bedrooms or more experienced a 2% decrease, bringing the rent down to $2,010 per month. Despite these decreases, rent prices remain high compared to pre-pandemic levels.
The impact of the construction boom on rent prices is more pronounced in certain regions, particularly in states like Florida and Texas. These Sun Belt states have seen a high number of newly built apartments being introduced into the market since the pandemic, resulting in significant declines in rent prices as more units become available. For instance, in Austin, Texas, the median asking rent price fell to $1,458 in July, marking a 16.9% decline from the previous year. Similarly, Jacksonville, Florida, witnessed a 14.3% decrease in median rent prices over the same period, with rents dropping to $1,465 per month. Statewide, the median rent price in Texas stands at $1,950, compared to $2,500 in Florida, according to Zillow.
Historically, wage growth has been closely linked to rent growth, as explained by Orphe Divounguy, a senior economist with Zillow’s Economic Research team. The tightness of the labor market often serves as a predictor of how tight the housing market will be, indicating a correlation between the two. Recent data shows that wage growth has slowed down, with wages and salaries increasing by 5.1% in June for the 12-month period ending in June 2024. This marks a decline from the peak of 9.3% in January 2022, with growth returning to pre-pandemic levels. Despite this slowdown, wages are still growing at a rate of 4% to 5% year over year, outpacing rent increases.
The construction boom in the U.S. has had a significant impact on the rental market, resulting in lower rents and increased rent concessions for tenants. While rent prices remain high compared to pre-pandemic levels, the surge in construction activity has provided renters with more options and bargaining power. The regional variations in rent prices and the relationship between wage growth and rental costs will continue to shape the rental market in the coming months.