New apartment construction hasn’t lowered rents in many areas
Rent prices have fluctuated alongside home prices in this year’s housing market. More inventory can bring down prices, but some renters still struggle to meet the rental price hikes found in new construction.
Seattle-based brokerage Redfin released a report this week that highlighted a 1.5% increase in asking rents for newly constructed apartments in 2024 — the biggest spike in 18 months.
The median price reached $1,802 in Q3 2024 for all apartment types, up from $1,714 in second-quarter 2024. Asking rents for studio, one-bedroom and two-bedroom apartments each rose in Q3, meanwhile, asking rents for apartments with three or more bedrooms declined.
The Midwest experienced a 3.3% increase in asking rents after an almost 50% increase in new apartment completions. The median rent price reached $1,519 — the biggest growth among all regions. The South — boasting the most new completions — saw a smaller increase of 1.1%, with a median rent price of $1,773. The most significant increase was in the West, a region notorious for high market prices. Asking rents rose 4.4% with 34.1% growth in new apartment completions — the second-highest on the list. Meanwhile, the Northeast broke the trend with declining rents.
Redfin described the unusual increases in asking rents as unusual, given the growth in new apartment completions in the Midwest and West.
“We would usually predict that rents will stay flat, or even potentially fall, when there are so many new apartment buildings opening up. 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%,” Redfin Senior Economist Sheharyar Bokhari said in the report.
“This is likely due to more new apartments being built in more expensive metros in each region, pushing the overall levels up,” he added.
Another Redfin rental absorption report found that slightly over half of new apartments built in Q2 were rented out within three months — the second-lowest seasonally adjusted share since mid-2020. But another rental data report from another industry giant may explain why this occurred.
Realtor.com released a November Rental report showing that minimum wage workers needed more hours to afford rent. Minimum wage workers needed extra hours to afford zero- to two-bedroom apartments in 44 out of 50 metro areas — most of which are located in the same regions from Redfin’s report.
Interestingly enough, Realtor.com also reported widespread rent declines — which evidently weren’t enough to help minimum wage workers.
“Lower rents, combined with stable or increased minimum wages, have offered a break to renters in some metro areas this year, though many minimum wage earners still struggle to find affordable rents,” said Realtor.com chief economist Danielle Hale.
“With minimum wages set to increase in more than half of the top 50 markets next year and a projected 0.1% annual decline in median asking rents in 2025, we expect some further relief in the coming year; however, more new construction is still one of the biggest levers we have to help with affordability,” she added.
Realtor.com’s optimism over using new construction to increase affordability contradicts Redfin’s findings. If new apartment rent prices continue to rise, then growing new apartment inventory may not help certain workers. But 2025 is right around the corner, so only time will tell if new construction remains the coveted solution to nationwide housing affordability challenges.