After years of rising rents across the country, recent national rental reports indicate that rent growth is beginning to slow down across the country. According to the reports, there several reasons why rent growth is slowing down. Experts believe that an increase in apartment construction has given tenants a little bit more choice in what they can rent. As the supply in rentals increases the demand for a particular unit decreases which limits the amount of rent a landlord can charge. Another explanation for the decrease in rental growth is that rents in certain areas may have hit the ceiling of what is affordable. In reality, there is only so much growth in rent that can occur before prospective tenants decide to go with cheaper options in other locations that can give them better value and take less of their paycheck.
What is perhaps concerning for landlords that have seen drastic rental growth and have consequently made business decisions and investments based on this growth is that rents are falling in certain locations.
Zillow reported that in August rents in many places fell for the first time since 2012. For instance, in Los Angeles, the median rental fell .5% after averaging rental increases of over 4% for the last two years. Data also shows that even Manhattan, which is notorious for expensive rents that always seem to grow is also seeing a drop in rental prices. For example, in March rental prices dropped in Manhattan by 3% from earlier in the year. The drop is especially pronounced in luxury buildings, and landlords and property managers in these buildings are starting to make concessions to get current tenants to renew. Some landlords are even offering several months of free rent, reduced security deposit and lower broker fees. In Manhattan, rental growth is expected to continue to decline as the supply of rental units increases. Of note in Manhattan in the past three years 19,000 units were added to the rental supply with another 10,000 under construction and 27,000 in planning stages.
Other large cities that are seeing rental growth decline include coastal cities like Boston, San Francisco, and Washington DC. Just like in other states the main reason for the rental decline in these major cities across the country is new construction.
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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.