Multifamily Rent Growth Ends 2023 on a Falling Note

As the New Year rolls in, 2023 is hanging on when it comes to multifamily rent growth. Apartment List reported that the market closed in December with national median rent dropping 0.8% to $1,379. That was the fifth month in a row in which rent growth was negative.

Year-over-year growth has dwindled to -0.1%, making apartment rents a little less expensive than the same time last year. The previous two years saw double-digit rent increases, peaking at 18%. On the whole during 2023, rents were down 0.7%. That compares to the period of 2017 through 2019 when full year rent growth was an average 2.6%. In 2020, rents fell by 1.3% while 2021 had a big increase of 17.6%.

“But despite this cool down, the national median rent is still nearly $250 per month higher than it was just three years ago,” the report said. Because of the previous frantic rate of growth, it would take time to fall back to previous levels.

Part of the reason for the ongoing drop could be seasonality. Rents rise in spring and summer and then drop during fall and winter and this is “squarely in the midst of the rental market’s off-season, as reflected in recent price trends.”

The report said that going back to 2017 and the start of the site’s index, it was the second sharpest December drop, though that’s only seven years of data.

Another aspect, depending on the region, is increasing inventory. Their national vacancy index is 6.5%, a little higher than pre-pandemic times. Apartment List has also tracked housing construction. Development of multifamily buildings with at least five units has risen to historical levels, at least since 2000. In November, there were 988,000 of such units under construction. They expect that there will be “an abundance of vacant units on the market in the year ahead.” When supply goes up with steady demand, prices should go down. But because building patterns have followed shifts in national demographics and population movement, some metros will feel the effect more than others.

Rents fell in 83 out of the top 100 metropolitan areas, with year-over-year prices down in 60% of the full list.

“In early 2022, all 100 of these cities were posting positive year-over-year rent increases,” they wrote. “The first to turn negative were the early “zoom towns” in states like Arizona, Nevada, and Idaho that surged in popularity in 2020 when much of the nation’s workforce went remote, but saw a pullback in demand as affordable options dissipated and more jobs were called back to city centers. Since then, larger cities have joined the trend, including much of California and the West Coast, Texas, and the Southeast. Currently the sharpest year-over-year decline can be found in Oakland, CA, where prices are down 9.3 percent compared to last December.”