New multifamily buildings are popping up across the country, satiating demand that has sent rents soaring in recent years.
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Annualized multifamily completions as of August totaled 740,000 units, a 50-year high, according to a RealPage report. That is up 79% year-over-year as pent-up, pandemic-era supply is coming to the market.
Those completions have flooded the market, pushing developers to drop rents amid the competition. Asking rents in new construction fell to $1,746 in the second quarter, down 6.2% from a year ago and the lowest level since 2022, according to Redfin.
The drop is the second steepest in five years, just behind the prior quarter, when rents dropped 7.5%.
Since the onset of the pandemic, rents have grown faster than wages in 44 of the 50 largest metro areas, according to a Streateasy analysis. In New York City, which has the greatest gap, rents shot up 8.6% between 2022 and 2023. In that time, wages increased 1.2%.
The imbalance has resulted in an affordability crisis in many cities, which has drawn attention from lawmakers. However, the regulations activists have called for have yet to gain traction.
Rent growth has been a result of a tumultuous residential real estate market. When interest rates plunged to all-time lows due to 2020’s economic standstill, would-be renters quickly became homebuyers, draining housing inventory.
However, those same rates then caused homeowners to be handcuffed to their homes, forcing other would-be homebuyers to remain renters. New migration patterns further diminished housing stock in metros facing ballooning populations.
In Dallas-Fort Worth, a metro that saw a population boom, rents skyrocketed 20% between 2021 and 2022, with occupancy rates reaching 93.4%. Developers responded with a historic building boom, which is now hitting the market and putting that growth in reverse.
But the recent decrease in rents is expected to trail off, according to RealPage. Multifamily starts this year are down 6% to just 333,000 units. Units under construction also decreased to 850,000.
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