APARTMENT SUPPLY TO DECLINE DRASTICALLY IN 2024
In 2023, 440,000 completions brought supply to its greatest levels since 1987.
A recent RealPage analysis states that the number of rental apartments in the United States hasn’t been this high in 36 years. The outcome has been predictable: despite a comeback in demand, rents have decreased in markets with the highest increase.
In fact, 58,000 flats were absorbed in the fourth quarter of 2023, which is typically a quiet quarter. It was the highest fourth quarter in 25 years, excluding 2020 and 2021. Nevertheless, it was 11,000 less than the mean since 2000.
The research claimed that 234,000 units were absorbed for the entire year 2023, which is a number that is closer to pre-Covid norms. Total completions came to 440,000. As a result, supply increased to levels not seen since 1987, while apartment occupancy decreased by 80 basis points annually to 94.1%, which is still within the long-term average range.
The research stated that rising consumer confidence and slowing inflation, which includes falling rents, were the main drivers of demand. Chief economist Jay Parsons stated that rent growth is being pressured downward since renters now have a lot more options than they did in recent years.
Effective rents went up just 0.3% in 2023. Thankfully for investors, a bearish trend seems to have ended at that level. Nonetheless, the research raised the following significant question: would rents nationwide maintain steady as completions pick up speed in 2024? After another 671,000 are expected to be completed in 2024, supply should drastically decrease. If that occurs, occupancy and rentals should rise in 2025 and 2026.
RealPage discovered, as in earlier studies, a strong correlation between the quantity of flats offered for rent and rental prices. Rents decreased in about 40% of US metro regions, especially in locations where supply increased. This was particularly true in the Sun Belt and Mountains, which combined accounted for 62% of newly constructed flats nationwide and 70% of the demand for apartments. Seattle was the only city on the West Coast with a high demand for apartments. New demand increased by just 4% for the region as a whole, where 10% of the country’s new units were constructed in 2023.
Carl Whitaker, senior director of research and analysis at RealPage, stated, We’re seeing the impact to rents even in the Class B and Class C space in these ultra-high supply areas. In 2023, six Florida metropolises made it into the top 10 nationally for rent reductions. There were further significant declines ranging from four to six percent in Austin, Boise, Atlanta, and Phoenix.
On the other hand, a third of metro areas—mostly in the Midwest or Northeast—saw minimal construction and experienced rent increases of three percent or higher. Only two metros in these areas saw a decrease in rent.
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