Linda P. Rey pays $1,950 a month for a small 1-bedroom apartment with a study that she uses as her 6-year-old’s room in Newton, Massachusetts. “I want to find a bigger place, but the cost is ridiculous,” says Rey, 40. The diversity, equity, and inclusion administrator says if she can’t find an affordable place when her lease is up, she’ll move in with family.
Rey’s neighborhood borders Boston, one of the priciest rental markets in the country. In June, the average rental price including studios to 4-bedroom apartments there topped $3,000 for the first time—and that’s excluding amenity-rich luxury apartments.1
But cities such as Boston, New York City, and Los Angeles are outliers. US median rent in May 2023 actually fell from May 2022, the first annual rent decline in at least 3 years, according to a Realtor.com report.2 Year-over-year rent prices dropped in June and July 2023 too.3,4
“It's a very different market from 2022,” says Jay Parsons, chief economist at RealPage, Inc., which provides property management software to the rental industry. “Demand dropped then due to low consumer confidence and inflation, which made people stay put, leading to lower vacancies,” he explains. “Now in 2023, we have rebounding demand as consumer confidence has improved, plus more supply from new builds.”
That combination of higher vacancies plus rising supply from new construction could keep the price drops coming—or at least make rent prices grow more slowly, he says. “The power has shifted to the renter.”
Much of the change is from the country leveling out after the pandemic. Between 2021 and 2022, the national median rent jumped 17% as the country rebounded.5 “When the pandemic first hit, there were eviction moratoriums, and landlords couldn’t force tenants out,” says Jacob Channel, senior economist at LendingTree, an online loan marketplace. “But when restrictions lifted, landlords raised rents considerably, overcompensating for lost time and money.”
Tenants saw their rents go up a bunch, and when they finally left, landlords would list the unit at an even higher price. Contrast that with today, with apartments generally renting for less than they had been in 2022.
But none of this means rents are cheap. They're nearly 25% higher than in 2019.6 “It’s important to remember how local real estate is,” says Meredith Stoddard, vice president of life experiences at Fidelity, who's been buying, selling, and renting out properties since her college years. “When you look at US cities’ rental averages, some were up 7% in 2023, while others were down a half percent or more. It’s different in each city.”
What’s not usually different: the reasons rent is so high.
Boxed out of buying
“As we continue to be in a higher-interest rate environment, it’s harder for some people to get into the real estate market and buy, which means renting longer,” says Stoddard. Without the turnover, there are fewer places to rent in some areas.
Laura and Kevin Malarkey know this firsthand. Since March 2021, they’ve been living in a 2-bedroom in suburban Woodland Hills, California, for $2,245 per month with their now 2-year-old. Kevin, 34, works for a tech startup, and Laura, 37, is a celebrity and on-set manicurist who needs to stay in the Los Angeles area to keep working.
“With Kevin working from home and a new baby joining us, we need 3 bedrooms,” Laura says. “Initially we thought we’d buy something, but the already-overpriced LA housing market combined with wildly high interest rates made that absolutely out of the question.”
And yet, going from a 2- to a 3-bedroom rental—which seem to be more scarce—would cost “basically double,” says Laura. “So we’ll be living on top of one another, with 2 kids under 3, for the foreseeable future."
Beyond high interest rates keeping people from buying homes, “corporations are buying housing, flippers are buying housing, short-term rental owners are buying housing—and turning them into more short-term rentals,” she says. “So that squeezes the market and creates a supply challenge.”
All of this leads to bumped-up rents—and more competition.
For Lara McCann-Moran, “it took a month to get over the stress” of her most recent apartment search. The 31-year-old was paying $2,800 for a cramped 2-bedroom apartment on Manhattan’s Lower East Side in 2022. “Then, the management company sent me an offer moving my rent up to $3,250.”
She figured she could get something nicer for that amount, only to find good units “gone in a second.” Several times she booked a viewing for the first possible time slot, and the broker would text to cancel, saying they’d already gotten an offer.
She found “a literal dream apartment” and showed up first at the open house with all her paperwork. She expected the usual first come, first served. Turns out the realtor “wanted to be fair” by sending the owner several options.
“Then, the broker said another applicant made a higher bid and asked if I wanted to do the same,” she says, having never heard of a rental bidding war. She made a higher bid. Ultimately the owner chose a different offer.
McCann-Moran eventually found a place for $2,850 on Manhattan’s Upper West Side—that came with a broker fee of about $5,000. As for her former Lower East Side apartment? The rent was hiked up to $3,795 per month.
Parsons thinks there’s so much demand in New York City because “a lot of the upper-income renters who had roommates are now working from home and getting their own spaces.”
Demand is high in Boston too. Stoddard’s friend took down his Newton, Massachusetts, rental listing in less than 24 hours because “there were too many applications to read through,” she says. And this was sight unseen. They wound up showing the place to only 3 people who met the requirements.
There are Boston bidding wars as well. More than 5% of area rentals tracked in May went for “over asking” by as much as $500 per month.7
So are all rents much lower outside of the big metro areas? Not necessarily. “There are vacation destinations where a lot of housing stock has been turned into short-term rentals, and it squeezes the rental market in those areas,” says Stoddard.
Remote work also continues to change the housing landscape. “You have people who migrated from higher cost-of-living areas, say California or New York, to more rural areas, because they were given the go-ahead to work remotely,” says Parsons. “So they can take their California income and live in Wyoming.”
“It's this double whammy of higher-income people who can afford to inflate rent prices moving into an area that doesn’t have enough construction to keep up with that influx,” says Channel. “So there’s not a ton of supply, but there’s a ton of demand. Lo and behold, prices increase.
Lack of new-construction supply across the country
Slowed construction during the pandemic added to the housing crunch in some areas. “Building a house was tough because raw materials’ cost was inflated,” Channel says. Now, though, “apartment construction is at a 50-year high, so there will be more new options on the market when we peak on new apartment completions in 2024,” says Parsons.
A welcome side effect for renters: “We might see rental concessions and discounted rents, particularly in downtown areas and metropolitan areas in interior states and the Sunbelt,” Parsons says.
But that won’t be the case in all cities. “A lot of big cities make it difficult to build apartments, and what gets built tends to be expensive because of the cost associated with building,” says Parsons.
This leads to upscale buildings—with rent to match. “When developers are building housing, it's in their best interest financially to focus on a higher-end market, because you're going to get more return on investment on that.”
The flipside, Parsons points out: “There’s little supply in the subsidized affordable housing space.” The rental market might continue to be challenging for lower-income renters.
Ways to save
Even with potential deals on the horizon in some areas, these tips could help renters who are considering a move.
- Shop around, even if you want to stay in your current place, says Parsons. “It gives you some negotiating power with your property manager to say, ‘I want to stay, but other places are offering lower rents.’ See if they're willing to give you a better deal.”
- Ask for long-term lease options. “Landlords are starting to worry about that 2024 environment when there’s more supply,” Parsons says. “They want to be as full as possible.” So they might be incentivized to offer longer leases. For example, you could ask for a lower monthly rent in exchange for a longer commitment—for example, 16 months instead of the standard 12.
- Share your situation before an increase. Don’t wait until your lease is up to mention your inability to handle a hike, suggests Channel. Instead, approach your landlord or building manager as soon as you hear a hike is coming. “The more time you give them to come up with other options, the higher the chance of them getting back to you with a more workable alternative,” says Channel.
- Be willing to compromise. “In a competitive market, picking something farther from a prime location, without high-end finishes or parking, or in a more-industrial area could go a long way toward reducing your costs,” says Stoddard.
- Consider a roommate or renting a room in an existing apartment. “Renting a 1-bedroom solo is usually more expensive than renting a 2-bedroom and splitting the rent 2 ways,” says Stoddard. “For example, in Atlanta, the median rent for a 1-bedroom is $1,750 and $2,275 for a 2-bedroom as of September 5, 2023, so going with a roommate could save about $600 per month there.”8
- Weigh the costs of higher rent vs. having a car. If living close enough to public transportation would allow you to ditch your wheels, run the numbers. The amount you might save on car payments, gas, insurance, parking, and maintenance could be more than the rent hike and public transportation costs.
- Remember that you are valuable. "While landlords might be incentivized to raise rents, they’re also incentivized to keep good tenants who pay their bills on time, don’t cause damage, and aren’t disruptive to their neighbors,” says Channel. “A landlord might be willing to take a little less money to keep a reliable tenant in their building.”