Greater Availability of US Rental Units Leads to Rising Vacancies and Lower Rent Costs

Redfin reported on Thursday (5-11-23) that the median US asking rent increased 0.3% year-over-year to $1,967 in April, marking the eleventh consecutive month of slowing growth. For comparison, this compares to a revised increase of 1.4% in March and a 16% increase reported in April 2022.

On a month-over-month basis, the median rent fell 0.2%, which Redfin points out is notable because rents typically rise at this time of the year.

The report cites a major contributing factor to the slowdown in rent growth is the expanding number of available rental units to choose from. The homebuilding boom over the last 15 years has increased the number of new rentals on the market, and landlords are now faced with rising vacancies. The report also notes that completed residential projects in buildings with five or more units rose 60% year-over-year on a seasonally adjusted basis to 484,000 units in March (the latest data available). There are only three other instances since the 1980’s when completions were higher. In 2023Q1, the rental vacancy rate jumped to 6.4%, the highest level in the past two years.

Adding additional background and his analysis, Redfin’s Deputy Chief Economist Taylor Marr said:

“The balance of power in the rental market is tipping back in tenants’ favor as supply catches up with demand. That’s easing affordability challenges and giving renters a little wiggle room to negotiate in some areas. The market has become more balanced, but the scale could tip back in favor of landlords if homebuilders pump the brakes on new construction in response to slowing rental growth.”