Rent Growth Slows Down: Cities With High Apartment Construction Experience Moderation in Rental Rates

Rent growth appears to be slowing down in places like Nashville, Frisco, Washington, D.C., and Nashville that have a lot of new apartment construction.

The straight relationship between a rise in housing supply and a slowdown in rent growth is complicated by the pandemic years and regional market variations. The wild ride in residential rental rates that occurred in the United States between 2020 and 2022 has somewhat leveled off in the last twelve months. With 1.2 million units coming to the market in just the previous three years, the nation is seeing a record number of apartment buildings. According to a number of housing experts, rent growth slows down as housing availability rises.

Source: RentCafe, Apartment List data

Nationwide rent growth has increased by just 0.2 percent so far this year; over the previous two years, this growth has slowed. For instance, rent increased by 2.9 percent on average in the two years prior to the epidemic, between 2017 and 2019. To gain a better understanding of how new development can actually slow down local rent growth, we examined average annual rent growth rates over the last five years in the top locations for apartment buildings.

Washington, D.C.

RentCafe listed two zip codes in Washington, D.C. as number one and number two on its list of the best locations in the United States where apartments were completed. Capitol Hill and the Navy Yard, two locations that have seen a significant flood of new residences, are included in 20002 and 20003. Between 2017 and 2022, more than 14,500 apartments were constructed in the zip codes; this represents increases of 73.1 percent on Capital Hill and 122.2 percent in the Navy Yard. Meanwhile, data from Apartment List indicates that the average yearly growth in DC’s median rent between 2019 and 2023 was 1.6%.

The notable decline in rent increases in 2020 and the ensuing surge in 2021 that was observed in markets all throughout the nation have a somewhat skewed effect on that average. Recent years have seen the D.C. area’s yearly median rent growth in 2022 and 2023 2.3 percent on average in the metro area, compared to 0.2 percent nationwide rent growth thus far this year. Comparing the data to other cities across the nation, it seems that the substantial rise in newly available units did slow down the growth of rent. Another factor could be the city’s halting rate of population expansion. The population explosion in D.C. experienced between 2010 and 2020 was already starting to decline prior to the epidemic, which caused a large number of people to relocate.

Queens, NY

It is hardly unexpected that Queens ranks highly in terms of new apartment construction, as residential towers emerging on the Queens shoreline in New York City have been a feature of the city’s new development scene for the last ten years. In the Long Island City area, which is included in zip code 11101, 7,081 apartments were constructed between 2018 and 2022. In almost the same amount of time, from 2019 to 2023, New York City’s average median rent increased annually by 5.5 percent. The biggest increase over that period was in 2021, when rentals increased by 34.9 percent, marking a significant recovery after the previous year’s 22.1 percent decline in rents. More recently, the annual increase rate of median rent in 2023 is 5.9%.

Queens’s population increase may be the reason behind the city’s continued higher-than-average rent growth. The population of Long Island City increased five times faster than the overall growth rate of New York City, rising by 40% in the ten years between 2010 and 2020. Simultaneously, the majority of newly constructed flats are found in upscale high-rises with expensive rents. Furthermore, according to statistics from a recent analysis, foot traffic increased by 5% in Long Island City’s commercial corridors between 2019 and 2022, whereas it decreased by more than 30% in Manhattan’s Midtown and Lower Manhattan neighborhoods since before the epidemic.

Nashville, TN

Nashville, a city in Tennessee, is among the fastest-growing in the nation and has recently seen some of the best employment opportunities in the Sunbelt. 6,806 apartment units were constructed in the city’s 37203 zip code, which includes a large portion of the downtown district, between 2018 and 2022. The results were distorted by the 2021 rise in rent growth, but the actual annual median growth between 2019 and 2023 is 4.3%. Nashville had a minor decline in rent growth in 2020—just 2.6 percent—unlike many other cities throughout the nation. Rent growth shot up to 20.6 percent the next year, but then fell to 2.9 percent in 2022 and -3.2 percent so far this year.

Frisco, TX

For many years, Frisco, a municipality near Dallas, has been among the American cities with the quickest rates of growth. A rapid increase in new multifamily housing has coincided with population growth. Throughout the majority of the town, 5,872 apartment units were constructed in Frisco’s 75034 zip code between 2018 and 2022. At the same time, the average annual growth rate of the median rent was 4.7% between 2019 and 2023. Similar to numerous other cities, Frisco witnessed a significant increase in rent in 2021, with an annual median rent growth of 22.4 percent. Since then, it has decreased, falling to 1.7 percent in 2022 and -2.7 percent so far this year. Nevertheless, Frisco’s typical rent is 31.9 percent more than what the rest of the Dallas metro area is paying.

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