Rents for new-build apartments will increase before 2025
Rents fluctuated this year in line with house prices on the housing market. More inventory can lower prices, but some tenants are still struggling to absorb rent increases in new construction.
Seattle-based real estate brokerage Redfin has a report this week highlighted that a 1.5% increase in asking rents for new-build apartments in 2024 – the biggest peak in 18 months.
The average price was $1,802 for all apartment types in the third quarter of 2024, compared to $1,714 in the second quarter of 2024. Asking prices for studios, one-bedroom apartments and two-bedroom apartments increased in the third quarter, while rental prices for apartments with three or more apartments. bedrooms decreased.
The Midwest saw a 3.3% increase in asking rents, following a nearly 50% increase in new apartment completions. The average rent reached $1,519 – the largest growth of any region. The South – with the most new completions – saw a smaller increase of 1.1%, with an average rent of $1,773. The largest increase occurred in the West, a region notorious for high market prices. Asking rents rose by 4.4%, with a 34.1% growth in new apartment completions – the second highest on the list. Meanwhile, the Northeast bucked the trend with falling rents.
Redfin described the unusual increases in asking rents as unusual given the growth in new apartment completions in the Midwest and West.
“We normally predict that rents will remain the same, or possibly even decrease, when so many new apartment buildings are added. What’s interesting in the third quarter is that rents in the West and Midwest are rising by more than the national average, even after the number of new apartments spiked between 30 and 50%,” Redfin Senior Economist Sheharyar Bokhari said in the report.
“This is likely because more new apartments are being built in more expensive metros in each region, driving up the overall level,” he added.
Another Redfin rental absorption report found that just over half of new apartments built in the second quarter were rented within three months – the second-lowest seasonally adjusted share since mid-2020. But another rental data report from another industry giant could explain why this happened .
Realtor.com has a November Rental Report showing that minimum wage workers needed more hours to pay rent. Minimum wage workers needed extra hours to afford zero- to two-bedroom apartments in 44 of 50 metro areas — most of which are in the same regions identified in Redfin’s report.
Interestingly, Realtor.com also reported widespread rent declines – which apparently weren’t enough to help minimum-wage workers.
“Lower rents, combined with stable or higher minimum wages, have given renters a break in some metro areas this year, although many minimum-wage earners are still struggling to find affordable rents,” said Danielle Hale, chief economist at Realtor.com.
“With minimum wages set to rise in more than half of the top 50 markets next year and expected annual decline of 0.1% in terms of average asking rents in 2025, we expect some further relief in the coming year; But more new construction is still one of the biggest levers we have to increase affordability,” she added.
Realtor.com’s optimism about using new construction to increase affordability contradicts Redfin’s findings. If rents for new apartments continue to rise, increasing the supply of new apartments may not help some workers. But 2025 is just around the corner, so only time will tell whether new construction remains the coveted solution to national housing affordability problems.
