Rents for New Apartments Face Biggest Spike in 18 Months

A sign is posted in front of an apartment building with available rentals in San Francisco on June 9, 2023. Justin Sullivan/Getty Images

Apartment rents turned pricier last quarter, with three out of four U.S. regions registering a gain, according to new data from real estate brokerage Redfin.

The median asking rents for newly built apartments rose 1.5 percent year over year to $1,802 in the third quarter, the company said in a Dec. 16 statement. The increase followed two straight quarters of more than 7 percent declines and is the “biggest” annual gain in 18 months. This was also the first time since late last year that new apartment median rents went above the $1,800 level.

Region-wise, the West registered the largest increase, with asking rents up 4.4 percent, followed by the Midwest and the South. The Northeast was the only region to register a decline, at 3.6 percent.

In terms of apartment completions, all four regions saw double-digit year-over-year growth. Nationally, new apartment completions rose in the second quarter to hit their highest level in more than 12 years.

“We would usually predict that rents will stay flat, or even potentially fall, when there are so many new apartment buildings opening up,” Redfin senior economist Sheharyar Bokhari said.

“What’s interesting in the third quarter is that rents are rising by more than the national average in the West and Midwest, even after the number of new apartments spiked between 30–50 percent.”

Bokhari attributes this to more apartments being constructed in the expensive metros of each region. This would push up the overall rent levels, he said.

Real estate marketplace Zillow said that rent growth was “fairly soft” this year given the construction boom. This trend is “expected to last into at least the first half of 2025.”

“However, the number of new apartment permits has drawn back dramatically, meaning the heights hit this year are likely to fade into the rearview mirror,” the company said.

As for the current affordability situation, Zillow said a median household spent close to 30 percent of its income on a new rental last month.

The least affordable metropolitan areas were Miami and New York City, where rents made up about 40 percent of household income. The most affordable were Milwaukee and Austin, Texas, at roughly 20 percent.

Single-family rents have risen by more than 40 percent since the start of the COVID-19 pandemic, Zillow said.

Rent Pressures

An October study from landlord software company TurboTenant revealed that more than half of American renters faced a “housing affordability crisis,” spending more than 30 percent of their incomes on rent.

“Worse still, 19 percent of respondents are severely cost burdened, dedicating 50 percent or more of their income to housing expenses in August 2024,” the study stated.

Since they give away half their incomes to rent, it becomes excessively difficult for such households to save enough money to buy their own homes.

Danielle Hale, chief economist at real estate listings website Realtor, said that minimum wages are set to rise next year in more than half of the top 50 markets in the United States. Meanwhile, median asking rents are expected to see a 0.1 percent annual decline.

This situation of rising wages and easing rents is set to provide “some further relief in the coming year,” she said.

“However, more new construction is still one of the biggest levers we have to help with affordability,” Hale said.

There have been suggestions for instituting rent control policies. In July, President Joe Biden called for a rental hike cap of 5 percent on corporate landlords.

In Washington state, a similar proposal was made. A bill has been introduced that seeks to restrict rent and fee hikes during a 12-month period to 5 percent.

Real estate experts have warned against such measures. Kevin Sears, president of the National Association of Realtors, said in a July statement that the group opposes attempts to impose rental caps.

Instituting such restrictions disincentivizes developers from carrying out construction, negatively affecting the housing supply situation.

“These measures fail to improve most renters’ financial situation and shift the burden of economic difficulties, inflation, and other costs onto the housing provider with no counterbalance,” Sears said.

“The only way to keep cities affordable for working-class families is to ensure that the supply of housing keeps pace with the growing demand.”