The balance of power in the rental market is shifting towards tenants as apartment rent growth is experiencing a rapid decline, The Wall Street Journal reports.
Rent Growth Deceleration
New-lease asking rents have seen a rise of just under 2% over the 12 months ending in May, a significant drop from the double-digit increases of the previous year. This deceleration represents the largest in recent history, according to data from CoStar Group and RealPage.
Impact on Renters and Investors
A decline in rents would provide relief for millions of renters who have faced a 25% increase in rents nationally over less than two years. However, it could pose problems for investors who have taken out large loans to purchase buildings, expecting to continually raise rents.
Market Slowdown
The U.S. rental market is slowing down after an unprecedented run. High prices have started to weaken demand from renters, many of whom are reaching their financial limits. An increase in new apartments under construction is also leading to more competition among landlords, potentially slowing down rents further.
Shift in Bargaining Power
The dynamic is starting to shift bargaining power to tenants in some hot rental markets. As new-lease rent prices cool, landlords are expected to reduce how much they ask their existing tenants to pay. This shift could lead to an increase in vacancies, which have already risen by 2.6 percentage points over the course of 2022.
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