The construction boom in the United States has led to a surplus of rental units, resulting in lower rents and various benefits for renters. The record construction activity following the pandemic has significantly increased the availability of empty units, leading to a rise in inventory for potential renters.
In response to the surplus of rental units, landlords have begun offering rent concessions such as discounts, incentives, or perks to attract new tenants. According to Zillow Group, about one-third of landlords across the U.S. offered at least one rent concession in July, marking an increase from the previous year. These concessions include free weeks of rent or free parking, aiming to entice renters in a competitive market.
The median asking rent prices for apartments of different sizes witnessed a decline in July, marking the first drop since 2020. For instance, the median rent price for a studio or one-bedroom apartment fell by 0.1% to $1,498 a month, while two-bedroom apartments saw a decrease of 0.3% to $1,730. Additionally, units with three bedrooms or more experienced a 2% decline to $2,010 per month.
The impact of the construction boom on rent prices is particularly noticeable in metro areas within Florida and Texas. These Sun Belt states have introduced a high number of newly built apartments since the pandemic, causing significant rent price declines as more units enter the market. For example, the median asking rent price in Austin, Texas, dropped to $1,458 in July, reflecting a 16.9% decline from the previous year.
Historically, wage growth and rent growth have been closely linked, according to Orphe Divounguy, a senior economist with Zillow’s Economic Research team. The labor market’s conditions often dictate the housing market’s dynamics, with wage increases supporting housing demand. However, with recent labor market easing and slower wage growth, the rental market is expected to follow suit and loosen.
The recent labor market conditions, with the number of job candidates surpassing available positions, have led to a slight increase in the unemployment rate and a deceleration in wage growth. This slowdown in wage growth, coupled with the surplus of rental units, has contributed to the rent reductions seen in various markets, benefiting renters.
The ongoing construction boom in the U.S. has had a notable impact on the rental market, bringing about lower rent prices, increased inventory, and various concessions offered by landlords. The surplus of rental units resulting from the construction activity has created a competitive environment, prompting landlords to entice tenants with incentives. As wage growth slows and the labor market eases, renters are likely to continue benefiting from these favorable market conditions.
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