Apartment Rent Growth Has Moved Into Negative Territory

Feel the heat dissipating and the cool coming? The once-hot apartment market continues to slow with both annual and monthly rent growth turning negative, according to the September 2023 Apartment List National Rent Report. 

This downward trajectory is the first time this has happened since the beginning of the pandemic. In fact, the rent index decreased 0.1% this August. What’s particularly notable is that this negative downturn started a month earlier than it occurred last year. Generally, prices go up in spring and summer and down in fall and winter. This year was different with the switch happening a month earlier. And it happened in a relatively short period since back in early 2022, all 100 cities in the country surveyed were posting positive year-over-year rent increases.

As of the end of this August, annual rent growth stands at minus 1.2%, which translates into apartments nationwide being 1.2% less costly than they were a year ago. This represents a big switch from recent years when annual rent growth had soared 18% nationally and some in the most popular cities skyrocketed more than 40%.

What causes such rent volatility—whether big or small? Mostly, the balance between the number of vacant apartments available and the number of renters hunting for housing. In the prior years of 2021 and 2022, a huge shortage of vacancies helped drive the big surge in growth. Now, an opposite scenario is occurring. The vacancy index has increased for 22 consecutive months and hit 6.4%, above the pre-pandemic average. Moreover, vacancies are expected to remain strong due to many new apartments being constructed, after a stall from pandemic-related disruptions. There are now more multifamily units under construction than at any point since 1970, a long span of 53 years. As a result, property owners are beginning to compete for renters, another big change from the past two years.

The negative numbers of rents falling month-over-month happened in more than half or 53 of the country’s 100 largest cities, according to ApartmentList. And prices have plummeted, too, Y-o-Y in 72 of these 100 cities. Expectations are that monthly rent growth will continue to slow for the rest of the year and annual rent growth could fall further in months ahead.

The first group of cities to head down were what the report calls the early “zoom towns,” which became popular when employees headed home to work remotely and there was also an influx of remote workers. The first examples of this phenomena were states like Arizona, Nevada and Idaho. Since then larger cities in much of California and the West Coast, Texas and the Southeast have experienced the trend, too. And the sharpest Y-o-Y decline has happened in Oakland, Calif., near San Francisco, where prices are down 8.7% versus a year ago in August. Rent declines are also common across Sun Belt metros, with Austin, Las Vegas and Phoenix showing 5% declines in the last year and rent growth also cooling.

In contrast, the fastest recent rent growth has occurred in metros across the Midwest and New England in such cities as Chicago, Cincinnati and Boston. But this growth is “relatively modest” because of the cooldown, the report says, versus what happened last year.