Renters gain negotiating power as apartment supply grows

Renters may find it easier to score deals on apartments as a flood of new units hits the market.

Just 47% of apartments completed in the fourth quarter of 2023 were rented out within three months, down from 60% a year earlier, according to a new report from Redfin.

The only other time apartments took this long to rent was during the early months of the pandemic in 2020.

"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 like discounted parking or a free month's rent," said Redfin Senior Economist Sheharyar Bokhari.

"But if you live in an area where the supply of new apartments is limited, deals may be harder to come by."

The data, based on a Redfin analysis of U.S. Census Bureau figures, points to a rental market that is starting to favor tenants, also known as a "tenant market."

With a near-record 90,260 new apartments finished in Q4—the second-highest quarterly total ever—landlords are increasingly competing for renters.

That's putting a damper on the hefty rent hikes we’ve seen in recent years.

Pandemic-era builds finally open their doors

Demand for rentals remains strong as high mortgage rates and home prices keep many would-be buyers in apartments. The rental vacancy rate has held at 6.6%—a two-year high—for three straight quarters.

Part of what’s at play here is a delayed reaction.

In 2020-2021, ultra-low interest rates and shifting housing preferences spurred a surge in multifamily construction. Since construction often takes years, many of those units are only now becoming available for rent.

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

The oversupply is most pronounced for smaller apartments. Newly finished studio builds jumped 32.6% year-over-year in Q4, and one-bedrooms rose 22.2%.

That flood of small units sent median asking rents plunging 20.9% for new studios and 11.9% for one-bedrooms in the first quarter of 2024.

Three-plus-bedroom apartments, in shorter supply, are on the pricer side. Their asking rents are up 9.1%, and 56% of new units rented within three months versus 40% for smaller types.

Rent burden weighs heavily on Americans

According to Redfin, the typical U.S. apartment now requires an income of $66,120 to be considered affordable—a daunting $11,408 more than the average renter earns.

Meanwhile, Harvard University found a staggering 50% of all U.S. renters are now classified as "cost-burdened," spending more than 30% of their income on rent and utilities.

Earlier this week, during an announcement of a $100 million fund for affordable housing, Treasury Secretary Janet Yellen said she was "pretty confident" that the rental market is cooling. At this rate, she may be right.