Apartment rents have been falling dramatically for several months, and it appears that they will soon be lower than they were a year ago.
According to real estate technology company RealPage, rents in August were only 0.28% higher than rents in August 2022. Contrast that to last year, when rents showed an annual growth rate of 11%. Rents have not experienced negative yearly growth in well over a decade, with the exception of a very brief decline during the Covid lockdowns. When they did, a recession affected demand, which is why.
Presently, it is not the case. Apartment occupancy rates nationwide are at a respectable 94%, which is in line with historical averages. More would-be purchasers have remained in the rental market as a result of high mortgage rates, high housing costs, and a lack of available homes. Instead, a huge supply of apartments is the problem.
With more than 460,000 new homes finished this year alone, construction of new homes is at a 50-year high. In the last three years, more than a million new homes have been constructed. A record has been set, and a large portion of that supply is on the higher end. As turnover rises and renters have more options, landlords’ pricing power decreases.
Although rents haven’t yet turned negative nationwide, they have in a few of local markets. The highest drops are observed in Austin, Texas (-4.9%), Phoenix (-4.9%), Las Vegas (4.7%), Atlanta (-3.7%), and Jacksonville, Florida (-3.4%).
Strong rent hikes are still being seen in the Midwest and Northeast. One exception is New York, where despite a large increase in supply, rents increased by just 1.9% annually.
Looking ahead, supply should continue to be high into the next year, which might cause rents to decline through 2025. However, because to funding issues and other difficulties, new development has decreased significantly this year. As a result, there should be significantly less supply by 2026, giving rents a chance to catch up.
Are apartment rents in Austin going down?
According to the Austin Apartment Association, a combination of a decline in renter demand and the completion of new multifamily apartment buildings has resulted in some rent reductions in the Austin market.
The emergence of “negative rent growth” following years of upward movement was a hot topic at several panel talks last week. According to association members, the market is anticipated to experience flat or declining rents in the years to come as new community construction begins to catch up to the significant demand increase that started five years ago.
According to Jordan Brooks, senior market analyst with ALN Apartment Data, “Demand has been pretty muted now for really about a year and a half, maybe a little more, and so the new construction activity combined with that needed demand has really brought occupancy back down not only to a normal level before the run-up in 2021, but actually to below where they were going into the pandemic.”
According to Brooks, projections for apartment building indicate a significant increase in the number of new units through at least early 2025, with neighboring communities like Pflugerville and Round Rock rising at the same time to assist meet the demand for affordable housing in Central Texas.
Although Austin’s high median family income levels can make a $250,000 property qualify as affordable, organization members noted there is still difficulties keeping up with demand for apartments that are inexpensive according to federal rules.
Crystal Moya, regional vice president of NRP Group, which owns roughly 3,000 units in the Austin area, said she and others want to keep pushing for improvements to state and municipal policies that would increase the viability of building affordable housing.
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