Apartment Supply Soars But Demand Remains High

Apartment Supply Soars But Demand Remains High

By Richard Berger

A RealPage analysis of the apartment market fundamentals this week explains how the industry continues to rebound in 2023 even during this flat-rent period.

“It’s rent disinflation without demand destruction,” according to the report. “Why? Supply, supply, supply.”

Apartment completions in Q3 soared to the highest levels since the 1980s.

But “it’s a good reminder that the challenges facing the apartment sector today have nothing to do with demand fundamentals, and everything to do with a 50-year high in apartment construction combined with expense pressures and the rapid spike in interest rates upending the financing market.”

The U.S. apartment market absorbed 90,827 units in ​Q3, according to RealPage Market Analytics. It points out that it’s the largest quarterly total in nearly two years and it’s roughly in line with the long-term seasonal norms.

“Don’t give high mortgage rates all the credit, either, as the correlation has been weak,” RealPage said.

“Apartment demand was strongest in 2021 when mortgage rates were lower, and more homes were selling. Apartment demand then evaporated in 2022 when rates initially jumped, and sales slowed. Rather, it appears slowing inflation and a still-strong job market are boosting consumer confidence and, in turn, spurring household formation among young adults most likely to rent apartments.”

RealPage said the influx of new supply has rapidly shifted the balance of power back to renters.

“New apartment completions jumped to the highest level in 30+ years, with more than 128,000 units coming online nationally. Simply put: Renters today have a lot more options thanks to all the new supply,” the report said.

Lofty supply has flipped the rental market narrative over the last 18 months from record-low vacancy and record-high rent growth to now normalized vacancy and flat-to-falling rents.

New apartment supply volumes and rent cuts in parts of the country rather than price increases have given the Midwest region a sizable lead in apartment growth performance, according to RealPage.

Bucking this trend are some West Coast markets, where there is somewhat lesser supply and rents that are being cut due to moderate supply and lackluster demand. Rents fell in every large West Coast metro except for San Diego and Orange County, RealPage cited.

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