The construction boom in the U.S. has had a significant impact on the rental market, resulting in lower rents and other benefits for renters. The record levels of construction activity following the pandemic have led to an increase in the supply of empty units, making more inventory available for potential renters. In fact, more multifamily units were completed in June than in any month in nearly 50 years, according to Zillow Group, an online real estate marketplace. This surge in construction activity has prompted landlords to take notice and begin offering rent concessions, such as discounts, incentives, or perks, to attract new renters.
According to Zillow, about one-third of landlords in the U.S. offered at least one rent concession in July, up from about one-quarter the previous year. These concessions can include free weeks of rent or free parking, adding value for potential renters. As a result, the median asking rent prices for apartments in one- to three-bedroom units fell in July for the first time since 2020, according to data from Redfin, a real estate brokerage site. The median asking rent price for a studio or one-bedroom apartment decreased by 0.1% to $1,498 a month, while two-bedroom apartments saw a 0.3% decline to $1,730, and units with three bedrooms or more were down 2% to $2,010.
Despite rent prices still being relatively high due to the surge during the pandemic, rent growth has begun to flatten out. Chen Zhao, who leads the economics team at Redfin, stated that rent growth leveling off can be seen as good news for renters. Metro areas in states such as Florida and Texas, which have seen a high number of newly built apartments since the pandemic, are experiencing significant rent price declines as more units become available. For example, the median asking rent price in Austin, Texas, dropped to $1,458 in July, a 16.9% decrease from the previous year, according to Redfin. Jacksonville, Florida, saw a 14.3% decline to $1,465 in the same timeframe.
Historically, wage growth and rent growth have been closely linked, according to Orphe Divounguy, a senior economist with Zillow’s Economic Research team. The tightness of the labor market can be indicative of the housing market’s conditions, with wage growth driving housing demand. Recent data shows that the labor market has eased, with more candidates than available jobs. This trend is reflected in the slowing wage growth, with wages increasing at a rate of 4% to 5% year over year, according to Zhao. This increase in wages relative to rent prices can be beneficial for renters, as it indicates that rents are falling in comparison to income levels. However, wage growth has slowed in recent months, returning to pre-pandemic levels after peaking earlier in the year.
The construction boom in the U.S. has had a significant impact on the rental market, leading to lower rent prices and increased availability of rent concessions for renters. The surge in construction activity has resulted in a larger supply of units, prompting landlords to offer discounts and incentives to attract tenants. As a result, rent growth has flattened out in many areas, providing relief for renters. Additionally, the link between wage growth and rent prices highlights the importance of economic factors in housing trends. Moving forward, it will be essential to monitor the relationship between construction activity, wages, and rent prices to understand the evolving rental market in the U.S.