Zillow’s July Rental Report Highlights Growing Affordability Trends in U.S. Cities
Zillow’s July report reveals a shift towards more affordable rental options in several U.S. cities, thanks to a surge in new construction. This increase in supply is pushing landlords to offer more incentives to attract tenants.
For prospective renters, the latest data offers a silver lining amidst a rental market where prices have continued to climb from last year and remain on an upward trend in many regions.
Rising Concessions and a Surge in Construction
One-third of property managers are now offering various concessions, such as one month of free rent, discounted rates, or complimentary parking, which can ease the initial financial burden of moving, security deposits, and first-month rent for tenants in softer markets.
Zillow reports that June saw the highest number of multifamily units completed in nearly 50 years, providing more options for renters facing financial constraints. Supporting this, RentCafe confirms that developers are expected to finish a record 518,108 rental units by the end of 2024, marking a 9% increase from the previous year and a 30% rise from 2022.
Zillow’s data indicates that the average U.S. rent increased by 0.4% in July to $2,070. This was a slight decrease from the 0.5% growth in June and 0.6% growth observed in April and May. Year-over-year rent growth also slowed to 3.4%, down from 3.5% in June.
Improved Affordability
These slight reductions in rent growth have shifted the affordability balance, with tenants now spending just under 30% of their monthly income on rent, placing them in a less cost-burdened category.
Property managers are adapting, with 33.2% of national rental listings on Zillow offering concessions in July, up from 25.4% last year. In the Sunbelt region, where much of the construction boom is taking place, the percentage of listings with concessions exceeds 50%, except in Salt Lake City. Notable cities include:
Raleigh, North Carolina (53.3%)
Charlotte, North Carolina (53.1%)
Atlanta (52.2%)
Salt Lake City (50.9%)
Nashville, Tennessee (50.8%)
Austin, Texas (50.5%)
Conversely, four metro areas have seen a decrease in concession offers compared to last year:
San Jose, California (-9.7%)
Baltimore (-5.6%)
Milwaukee (-1.8%)
Pittsburgh (-0.2%)
A Complex National Rental Landscape
According to a recent New York Times article, the rental market remains diverse. Many tenants are still paying rents set earlier in the housing cycle, and new construction is predominantly focused on luxury segments, which does little for middle- or lower-income renters in the short term.
The Wall Street Journal suggests that rents in Northeast and Midwest cities, such as Kansas City and Washington, D.C., are expected to keep rising through 2024. However, the overall rental outlook has improved compared to last year. The Zillow Observed Renter Demand Index, which measures rental market tightness, has dropped by 23.3% since last July, reflecting the impact of the significant increase in available rentals.
Impact of Falling Interest Rates on Rentals
As interest rates decline, the rental market may soften further, potentially allowing more renters to transition to homeownership. Additionally, returning to office work may influence the rental market as employees adjust from remote work arrangements.
Construction costs will also affect rental prices. Developers bound by higher rates may focus on projects in high-demand areas with strong job growth. Doug Ressler from Yardi Matrix notes:
“The impact on developer activity may vary by region. In Texas, for example, apartment demand remains strong due to corporate relocations and high home prices. Conversely, some areas are seeing a slowdown in new construction due to the economic climate.”
Key Findings from the Zillow Report
Overall Rents
U.S. rents have increased by 3.4% from last year.
Rents have risen by 33.4% since the pandemic began.
Only Austin has seen a monthly rent decrease (-0.2%).
Rents have climbed in 48 of the 50 largest metro areas, with the largest increases in Hartford (7.9%), Cleveland (7.3%), Providence (6.7%), Louisville (6.6%), and Richmond (6%).
Single-Family Rents
Typical single-family rent is $2,294 as of July, up 0.4% from the previous month.
Single-family rents have increased by 4.7% year-over-year and 40.1% since the pandemic began.
Monthly rent decreases were noted in Milwaukee (-0.7%) and Austin (-0.02%).
Single-family rents have risen in 49 of the 50 largest metro areas, with the highest annual increases in Cleveland (8.6%), Cincinnati (7.8%), Indianapolis (7.5%), Columbus (7.2%), and Louisville (7.2%).
Multifamily Rents
The average asking rent for a multifamily unit is $1,916, up 0.4% from the previous month.
Multifamily rents have risen by 2.6% year-over-year and 27.3% since the pandemic.
Monthly rent declines were observed in Sunbelt cities like Austin (-0.3%) and Phoenix (-0.2%).
Multifamily rents have increased in 40 of the 50 largest metro areas, with the biggest annual rises in Hartford (8.3%), Providence (7%), Cleveland (6.5%), Louisville (6.2%), and Richmond (5.1%).
Affordability Metrics
The median household now spends 30% of income on rent, compared to 28.6% before the pandemic.
The most affordable rental markets are Minneapolis (20.2%), Salt Lake City (20.3%), St. Louis (20.6%), Austin (21%), and Raleigh (21.2%).
The least affordable markets include Miami (42.9%), New York (42%), Los Angeles (37.4%), San Diego (34.1%), and Riverside, California (33.8%).
The income needed to afford the typical U.S. rent, keeping it under 30% of annual income, is $82,795.
Final Observations
While any softening in the rental market is positive news for tenants compared to recent years, a broader perspective is needed. Rents have surged between 27% and 40% across various property types since the pandemic began. Despite wage increases, they have not kept pace with rising rents and other living costs.
Affordable housing remains a critical issue across much of the U.S., especially in the Northeast and parts of the Midwest, where rental inventory is either scarce or high-priced. The ongoing construction boom in the Sunbelt and other regions indicates that investors offering affordable housing will continue to see strong demand.
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