Rising Multifamily Construction Brings Rent Relief: A Game-Changer for Renters

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The U.S. rental market is experiencing a transformative shift as multifamily construction reaches unprecedented levels, offering a breath of fresh air to renters grappling with high costs. With a record-breaking 50-year high in new multifamily housing starts, the rental landscape is cooling, and renters are seeing a surge in concessions and improved lease terms.

A Historic Boom in Multifamily Construction

In July, Zillow reported that 33.2% of rental listings featured concessions—a notable 23% increase from the previous year. This surge in concessions reflects the impact of an extraordinary building boom. “Builders have stepped up and built an incredible number of homes in response to soaring rents during the pandemic, and renters are now seeing the benefits,” stated Zillow Chief Economist Skylar Olsen. The influx of new apartments has surpassed any seen in decades, offering a golden opportunity for those in the rental market.

In June alone, nearly 60,000 new multifamily rental units came online, with over 882,900 units still under construction. This level of activity mirrors the last major building surge in 1973, when new multifamily units peaked at 919,700. Despite this boom, builders are slowing their pace as vacancy rates rise to 6.6%, the highest since winter 2021.

Cooling Rent Growth and Expanding Concessions

The increase in multifamily inventory has contributed to a cooling in rent growth, which fell to 5.1% in July—its second consecutive month of decline. This is a significant drop from the double-digit rent increases experienced during the pandemic's peak years of 2020 and 2021.

Cities like Raleigh, Charlotte, Atlanta, Salt Lake City, Nashville, and Austin are leading the trend with over half of rental properties offering concessions. Conversely, San Jose, California, has seen a 9.7% decrease in rentals with concessions, highlighting a more competitive rental market.

The California Conundrum: Rent vs. Buy

A recent GOBankingRates report underscores the high costs associated with living in California. In San Jose, where the median household income is $136,010, homeowners face an average monthly mortgage payment of $8,720 for a home valued at $1,472,661. In contrast, renters in San Jose pay an average of $3,243, making renting a more economical choice. When factoring in all living expenses, the total cost of homeownership in San Jose is 49.08% higher than renting.

Looking Ahead

As the rental market adjusts, the trend of increased concessions is expected to continue throughout 2024, influenced by a slowing job market and lower mortgage rates. Renters are poised to benefit from this evolving landscape, with more favorable lease terms and enhanced rental opportunities on the horizon.