Will a record-breaking number of new apartments in the U.S. bring reduced rents?

My own unscientific observations within Minneapolis and across the Twin Cities metro has had me wondering just how many apartment buildings are really being built. It seems to me that around here, apartments are just going up everywhere this year! 

Apparently, a couple of years ago, Minneapolis changed zoning in most major transit corridors in the city, basically allowing developers to build six-story apartment structures without having to battle with neighbors over height and density variances. It also eliminated parking minimums so they no longer needed to build in parking infrastructure and could reduce costs. But according to this article from Axios, the apartment boom has already come and gone. 

Looking out across the country, according to RentCafe, 2023 will end up as the new peak year for construction of apartments in the United States, with an estimated 461,000 units completed by the end of the year. Per Chrtr, the building boom has seen over 1.2 million new units delivered in the last 3 years, with the gap between single-family home and apartment construction opening to its widest point in almost 50 years. These last three years have been a construction boom not seen since the 1970s. Another 1 million new rentals are also set to be completed through 2025.

The Twin Cities area is #19 in the Top 20 Metros for New Apartments in 2023. New York City, Dallas, Austin, Miami and Atlanta are the top 5! These metros have larger numbers of people relocating to them each day. Here is the map of all 20:

With housing affordability for both renters and homeowners at the worst point in U.S. history, some are celebrating the apartment construction boom. The hope is that this big increase in the number of units will soften the rental market, translate into cheaper rents, and even lower housing prices. At the same time, others are a bit less optimistic. They point out that despite apartment construction hitting multi-decade highs, the reality is that most all of these units are considered "high-end" and target the upper-middle class and high-income earners. This means that apartment availability for lower income groups will remain very low and have little impact to improving affordability for middle to lower income earners. 

According to this PBS article, the median rent rose just 0.5 percent in June, year over year, after falling in May for the first time since the pandemic hit the U.S. Some economists project U.S. rents will be down modestly this year after soaring nearly 25 percent over the past four years. Rent.com's August 2023 National Rent Report notes that the national median rent price is now $2,038, only $15 less than levels from August 2022 when prices peaked at $2,053. Most agree that the impact of the construction boom will really be on a locational case-by-case basis, meaning an "uneven" relief for renters. 

PBS explains that there will be little comfort for many U.S. renters who’ve had to put an increasing share of their income toward their monthly payment. As an example, renters in cities such as Cincinnati and Indianapolis are still getting hit with increases of 5 percent or more. Much of the new construction is located in just a few metro areas, and many of the new units are luxury apartments, which rent for well north of $2,000. The reality that they suggest will be coming is that there will be a period of rent flattening over the next 12-18 months.