The ongoing construction boom in the United States has had some unexpected positive effects on renters across the country. Since the start of the pandemic, there has been a surge in construction activity, resulting in a significant increase in the number of empty units available for rent. This surplus of inventory has forced landlords to take notice and implement rent concessions, such as discounts, incentives, or perks, to attract new tenants. According to Zillow Group, a prominent online real estate marketplace, a third of landlords in the U.S. offered at least one rent concession in July, compared to just a quarter the previous year.
In a surprising turn of events, the median asking rent prices for apartments in the U.S. witnessed a decline in July for the first time since 2020. Redfin, a leading real estate brokerage site, reported that the median rent price for various unit sizes fell during this period. Studio or one-bedroom apartments saw a 0.1% decrease to $1,498 a month, while two-bedroom apartments dropped by 0.3% to $1,730. Units with three bedrooms or more experienced a more substantial 2% decline to $2,010. Despite the decrease, rents remain relatively high compared to pre-pandemic levels due to the significant price increases witnessed during the pandemic.
The impact of the construction boom varies by region across the U.S. Metro areas in states like Florida and Texas, known as Sun Belt states, have seen notable declines in rent prices as more newly built apartments become available. Cities like Austin, Texas, witnessed a 16.9% decline in the median asking rent price to $1,458, while Jacksonville, Florida, saw a 14.3% drop to $1,465. Rent concessions have also increased in 45 out of the 50 largest metro areas in the country, with Jacksonville, Florida, experiencing the most significant rise in concessions.
Historically, wage growth has been closely linked to rent growth, with a tight labor market often indicating a competitive housing market. However, recent trends have shown a shift in this relationship. Despite slowing wage growth, rents in many areas are falling relative to wages, suggesting a favorable situation for renters. According to Orphe Divounguy, a senior economist at Zillow, as wage growth weakens and the labor market loosens, the rental market is expected to follow suit and become more tenant-friendly.
While the construction boom has brought about lower rents and increased rent concessions for renters in the U.S., several challenges remain. Wage growth has slowed in recent months, returning to pre-pandemic levels, which could potentially impact the affordability of housing for many Americans. Additionally, the overall economic outlook, including employment figures and inflation rates, could significantly affect the rental market in the coming months.
The construction boom in the U.S. has had both positive and negative consequences for renters. While the increase in construction activity has led to lower rents and more rent concessions, challenges such as slowing wage growth and economic uncertainties remain. It is essential for renters to stay informed about market trends and be proactive in exploring housing options that align with their financial circumstances.