Although rents have been on a decline in the top 50 metros for over a year, low multifamily permitting could unfold higher rent prices. In 2024, within the top 50 metros only 294,000 multifamily units were permitted, which is well below the 318,000 units permitted in 2020, according to the Realtor.com February rent report.
“During the pandemic, rent prices surged significantly. While there has been a gradual correction, the current trend of declining rents over the past 19 months and a still-sizable number of multifamily units under construction have impacted builders' enthusiasm for new projects,” says Danielle Hale, chief economist of Realtor.com.
“The nation is short 3.8 million homes according to Realtor.com research. As builders attempt to right-size their construction pipelines amid shifting economic and policy cross currents, multifamily builders nationwide have made headway, evidenced by vacancy rates trending up. Still, the shortfall varies by market and region. The low level of permitting for multifamily housing, particularly in markets where rents are still climbing, may become a catalyst for future rent growth.”
As Hale mentions, the hot markets where demand is high, rent is already growing, and low levels of permitting will cause supply constraints and potentially even higher rents. For nine of the top 50 metros, permitting was lower than recent history in 2024. Rent jumps are expected in New York City; Kansas City, Missouri; Detroit; Washington D.C.; San Jose, California; Baltimore, Maryland; Boston; St. Louis; and Charlotte, North Carolina.
In contrast, nine of the top 50 metros saw more multifamily permitting in 2024 than over the previous five years and experienced rent price declines year over year. This includes Birmingham, Alabama, where rent declined 5.4% year over year and multifamily building permits grew by 22.1% from the average of the previous five years; Cincinnati’s rent declined 3.3% year over year while multifamily building permits grew 29.9%; and Cleveland’s rents declined 3% year over year while multifamily building permits grew 37.9%. Multifamily supply growth will put further downward pressure on rent in the future, Realtor.com says.
While keeping an eye on areas where federal layoffs are present, the report has not seen any meaningful changes in rent yet. Of the five major metros with the highest concentration of federally employed workers, rent is up 3.3% year over year in Washington D.C. with modest rise in Oklahoma City (+2%), and Baltimore (+1.25%). In San Diego, though rent experienced a sharp decline of 6% year over year, while also softening in Virginia Beach, Virginia (-1.5%).
According to the report, as fewer renters turn into first-time home buyers, demand for larger rental units remains high. Two-bedroom units are seeing the highest long-term rent growth over the last five years at 18.3%. That’s compared to one-bedroom units, which grew 14.3%; and studio units, which experienced the least rent growth, at 9.7%, in the same time frame.
Despite studio units tending to experience more volatility in activity, February rent growth for studio units dipped slightly at -0.8% compared to last year, which closely matches the year-over-year growth of one- and two-bedroom units, both experiencing -0.7% dips.
