New Apartments Stumble: Is the Rental Boom Fizzling Out?

The pace at which newly-built apartments are getting filled has slowed significantly, reaching near the slowest pace on record in recent quarters. Census Bureau data, only 47% of new apartments completed in Q3 2024 were rented within three months. This rate, matching Q4 2023 data, highlights a significant cooling in tenant demand despite a record number of units entering the market.

The slowdown in leasing is primarily attributed to a surge in supply, with 142,900 new apartments hitting the market in just the third quarter—the highest number on record. However, signs indicate a potential shift. Builders are pulling back on new projects, with a 10% year-over-year decline in construction permits, potentially reducing new rentals in the near future. This could lead to gradual rent increases after an extended period of stabilization.

“Landlords have been lowering rents and offering incentives like free parking to attract tenants, but with fewer privately financed apartments expected in the pipeline, landlords may regain pricing power in the coming year,” explained Redfin Senior Economist Sheharyar Bokhari.

The rental vacancy rate for apartment buildings with five or more units ended 2024 at 8.2%, marking its highest point since early 2021. This trend reflects softer demand for unfurnished apartments amid economic uncertainty and shifting demographic trends. The median U.S. asking rent currently stands at $1,607, which is up slightly by 0.4% year-over-year but remains approximately $100 below its peak.

Absorption rate data suggests a notable variance in demand based on apartment size. While 50% of studio apartments were rented within three months, up from 42% a year earlier, other unit types struggled to maintain prior rates:

• -1-bedroom apartments: Absorption fell to 49% from 54%

• - 2-bedroom apartments: Declined slightly from 51% to 50%

• - 3-bedroom apartments and larger: Dropped to 51% from 56%

The relative strength in studio apartments is linked to their lower completion rate—just a 0.4% increase in new supply—compared to the double-digit growth seen in larger units.

As the seasonally adjusted absorption rate remains under pressure, the broader housing market faces a complex landscape. New construction slowdowns may eventually rebalance supply and demand, affecting rental pricing strategies. While landlords capitalize on the current supply glut with promotions, tenants should anticipate rental market trends shifting again as inventory contracts.

For renters seeking affordability, unsubsidized apartments currently present an attractive window of opportunity. However, if builders pull back further, prospective tenants may face a more competitive landscape by late 2025.