The construction boom in the U.S. has led to a surge in record-construction activity post-pandemic, resulting in a higher supply of empty units available for renters. This increase in inventory has benefited renters by leading to lower rents, as landlords are now offering rent concessions to attract new tenants. According to Zillow Group, an online real estate marketplace, landlords are providing discounts, incentives, and perks such as free weeks of rent or free parking to entice renters. In July, about one-third of landlords across the U.S. offered at least one rent concession, marking an increase from the previous year.
As a result of the construction boom and the increased supply of rental units, the median asking rent prices for apartments in one- to three-bedroom units have fallen in July. This marks the first time a decrease in rents has been observed since 2020, according to Redfin, a real estate brokerage site. The median asking rent price 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. Similarly, units with three bedrooms or more saw a 2% decline to $2,010 per month, based on Redfin data.
Metro areas in states like Florida and Texas, which have experienced a high number of new apartment constructions, are witnessing significant rent price declines. For example, in Austin, Texas, the median asking rent price fell to $1,458 in July, reflecting a 16.9% decline from the previous year. Similarly, Jacksonville, Florida, saw a 14.3% decrease in the median asking rent price to $1,465 during the same period. These declines are attributed to the increased availability of rental units in these regions.
Factors Influencing Rent Prices
Historically, wage growth has been closely linked to rent growth, indicating the impact of the labor market on the housing market. With the recent easing of the labor market and an increasing imbalance between job seekers and available positions, rental markets are expected to continue to loosen. According to Orphe Divounguy, a senior economist with Zillow, rapid wage growth can support housing demand, while stagnant wage growth can contribute to lower rent prices relative to wages.
Although wage growth has slowed compared to previous years, it continues to outpace rent price increases. Wage growth peaked at 9.3% in January 2022 and has since declined to 3.1% by mid-June, returning to pre-pandemic wage levels. Despite this slowdown, wages are growing at a rate of 4% to 5% year over year, signaling a positive trend for renters in terms of affordability. Higher wages provide renters with more financial flexibility and allow them to better cope with rising housing costs.
The construction boom in the U.S. has had a significant impact on renters, leading to lower rents, increased supply of rental units, and greater affordability in certain regions. As the labor market continues to evolve and wages fluctuate, renters may experience further changes in rental prices and market conditions. Overall, the construction boom has shifted the landscape of the rental market, providing renters with more options and opportunities for securing affordable housing.