Renters Gain Bargaining Power As New Apartment Supply Surges — Multifamily Building Starts Have Fallen Below Their 10-Year Average

The tide may be turning for renters in America’s tight housing market. After years of soaring costs and limited options, tenants are discovering newfound leverage as a wave of newly built apartments floods major cities.

According to a recent Redfin analysis of U.S. Census Bureau data, just 47% of new apartments finished late last year were snatched up within three months. That’s down from 60% a year earlier, marking the slowest absorption rate since COVID-19 upended the market in 2020.

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The slowdown in rental absorption comes as the supply of new apartments reaches near-record levels.

Why the sudden breathing room? A building boom sparked by pandemic-era demand is finally bearing fruit. At the tail end of 2023, 90,260 new apartments hit the market — the second-highest quarterly total on record.

The report said increased inventory creates competition among property owners, which can mean more favorable terms for tenants.

The numbers tell a more nuanced story. New studios' rents plummeted 20.9% compared to last year, while one-bedrooms saw an 11.9% drop. Two-bedroom units dipped a modest 1.2%. But it’s not all rosy; larger apartments bucked the trend, with three bedrooms posting 9.1% higher rents, hinting at sustained demand for family-sized homes.

"If you're looking for a rental and you've noticed a lot of new apartments popping up in your neighborhood, it may mean you have room to negotiate on price or ask for concessions," Redfin Senior Economist Sheharyar Bokhari said in the report. That could include "discounted parking or a free month's rent." 

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However, the economist cautioned that market conditions vary by location and property type. Renters in areas with limited new supply may find deals harder to come by.

Still, increased supply is reflected in vacancy rates, which have hovered at 6.6% for the past three quarters — the highest level since 2021. While the rate has stabilized, it represents an increase from the tight markets seen in the immediate aftermath of the pandemic.

Despite recent improvements, the median U.S. rent still inched up 0.8% from last May, reaching a high not seen since late 2022. To comfortably afford the typical apartment, renters need to pull in $66,120 a year — over $11,000 more than the average renter makes.

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With more inventory available, the outlook for the construction industry is mixed. While completions are near record highs, new multifamily building starts have fallen below their 10-year historical average, signaling a potential slowdown in future supply growth.

While the current supply surge presents challenges for property owners, it may offer a reprieve for renters who have grappled with affordability issues in recent years.

"Building more housing is a tried-and-true way to ease the housing affordability crisis," Bokhari noted. "With rent and home prices at historic highs, local and federal leaders should continue to encourage more construction."

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