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A construction boom in the United States has led to lower rents and other benefits for tenants.
Record construction activity since the pandemic has increased the supply of vacant apartments, meaning there is more inventory available for renters. More multifamily homes were completed in June than in any other month in nearly 50 years, according to Zillow Group, an online real estate marketplace.
Landlords are becoming aware of this and are now offering rental concessions – discounts, incentives or perks to attract new tenants – such as rent-free weeks or free parking.
About a third (33.2%) of landlords across the U.S. offered at least one rent reduction in July, compared to about a quarter (25.4%) last year, Zillow found.
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Meanwhile, median asking rents for one- to three-bedroom apartments fell in July, the first time since 2020, according to real estate brokerage website Redfin.
The median rent for a studio or one-bedroom apartment fell 0.1% to $1,498 a month; for two-bedrooms, it fell 0.3% to $1,730; and for units with three or more bedrooms, it fell 2.0% to $2,010, according to Redfin data.
Rents are still high due to sharp price increases during the pandemic, said Chen Zhao, who leads the economics team at Redfin. But now rent growth has flattened, which can be seen as “good news for renters,” she said.
Sun Belt states lead the trend
Rents have risen significantly in the metropolitan areas of Florida and Texas, two Sun Belt states that have seen a high number of newly built apartments since the pandemic. According to Redfin, the price drops as more units become available.
For example, the median rent in Austin, Texas, fell to $1,458 in July, a 16.9 percent drop from a year earlier, Redfin said. It was the largest drop among all other metropolitan areas analyzed in the national report, the company noted.
According to Redfin, the median asking rent in Jacksonville, Florida, fell 14.3% to $1,465 during the same period.
For comparison, according to Zillow, the average rent in Texas is $1,950. In Florida, the comparable rent is $2,500.
According to Zillow, rent concessions have increased year over year in 45 of the 50 largest metropolitan areas in the United States.
The year-on-year increase in the share of rental listings with concessions is highest in Jacksonville, Florida, where concessions increased 17 percentage points, according to Zillow data, followed by Charlotte, North Carolina (15.7 points), Raleigh, North Carolina (14.7 points), Atlanta (14.5 points) and Austin, Texas (14.1 points).
How wage growth reduces rental costs
Historically, wage and rent growth have been closely linked, says Orphe Divounguy, a senior economist on Zillow's economic research team.
The tense situation on the labor market allows conclusions to be drawn about how tense the situation on the housing market will be, he explained.
The labor market has eased recently, with the number of applicants exceeding the number of available jobs. In July, nonfarm payrolls increased by just 114,000, compared to 179,000 in June, according to the Bureau of Labor Statistics. The unemployment rate rose to 4.3%, the highest level since October 2021.
“When wages rise rapidly, that contributes to demand for housing,” said Divounguy. “When the labor market eases, we expect the rental market to ease further.”
Wages are rising by 4 to 5 percent annually, Zhao said: “That's good. It means that rents are actually falling relative to wages. Their wages are rising faster than rents.”
Certainly, wage growth has slowed. According to the Bureau of Labor Statistics, wages and salaries rose 5.1% in June for the 12-month period ending June 2024.
According to the Indeed Hiring Lab Institute, wage growth peaked at 9.3% in January 2022 and fell to 3.1% by mid-June, returning to pre-pandemic wage levels.