- Rents for newly constructed studio apartments in the first quarter of 2024 fell 20.9% year-on-year due to a surge in supply.
- New apartment construction in the U.S. topped 90,000 units in the fourth quarter of 2023, near a record high.
- While rents for new studio and one-bedroom apartments are falling, larger units remain scarce and expensive.
If you’re thinking about moving, now may be the perfect time to sign a lease on a brand new studio apartment.
In recent years, developers have been building lots of new small apartments, and the increased supply has driven down rents: According to a new report from real estate services firm Redfin, the average asking rent for a newly built studio apartment (one that was completed in the last quarter) fell 20.9% in the first quarter of this year compared to last year.
Rents for new one-bedroom apartments are also falling, with the average rent falling 11.9% year-over-year in the first quarter of 2024, according to the report. Redfin noted that the number of new one-bedrooms in the fourth quarter of 2023 increased 22.2% year-over-year.
The number of new apartments that have recently hit the market is approaching an all-time high: Redfin noted that more than 90,000 new apartments were released in the fourth quarter of 2023, capping off a big year for apartment construction.
That additional supply may be outstripping demand, as the percentage of new apartments rented within three months of completion has fallen from 60% at the start of last year to 47% this year.The Redfin report is based on U.S. Census data for “unfurnished, unsubsidized, privately financed rental apartments in buildings with five or more units.”
“If you’re searching for rental space and notice a lot of new apartments being built in your neighborhood, you might have some room to negotiate the price or ask for concessions like discounted parking or a free month’s rent,” Sheharyar Bokhari, senior economist at Redfin, said in a statement.
But new housing isn’t evenly distributed across the country, and the pace of new construction of both single-family homes and apartment complexes has begun to slow, in part because of persistently high interest rates.
Studios and one-bedroom apartments tend to have higher profit margins for developers than larger apartments, and developers are not building enough apartments suitable for large families. The number of newly built apartments with three or more bedrooms fell 0.9%. According to Redfin research, average asking rents in the fourth quarter of 2023 are up 1.5% year over year, and average asking rents in the first quarter of 2024 are up 9.1% year over year, contributing to a long-term shortage of large apartments in urban areas.
In general, good news is rare in the rental market. Overall rents are still rising significantly, and according to a recent Harvard University report, they are 26% higher than they were at the beginning of 2020. Rents are rising in three-fifths of housing markets across the nation. And the number of Americans who can’t afford housing is growing.
According to a Harvard University report, half of renter households are expense burdened on rent as of 2022, spending more than 30% of their income on it. This is the highest percentage since the U.S. Census began collecting this data, the report noted. The number of people who are severely expense burdened, meaning they spend more than 50% of their income on rent, also hit an all-time high in 2022.
Renters are also increasingly unable to buy homes. Home prices and mortgage rates have soared in recent years, making it even more difficult for renters to own a home. According to a Harvard University report, the U.S. home price index is up 47% since the beginning of 2020, and the median home price is about five times the median household income.
