Why Are New Apartments Sitting Empty—and Will Landlords Soon Turn the Tables on Renters?

Newly Built Apartments Are Struggling—But the Tide May Be Turning

Just 47% of new apartments completed in the third quarter were leased within three months—the slowest pace recorded aside from the pandemic's onset. According to a recent Redfin report, landlords now face a renter's market saturated by a record-breaking 142,900 new apartment units completed last quarter.

Renters Have the Upper Hand—For Now

With so many new apartments on the market, renters enjoy abundant options. To attract tenants, landlords have resorted to slashing rents, offering incentives like free parking and reduced fees. Yet, these perks might soon disappear, as builders are beginning to scale back, evidenced by apartment construction permits dropping nearly 10% year-over-year.

Rent growth has slowed dramatically, up only 0.4% year-over-year to a median asking price of $1,607—about $100 below the recent peak. This moderate growth starkly contrasts with the double-digit hikes observed during the pandemic housing boom.

Studio Apartments: The Exception to the Rule

Interestingly, studio apartments are defying the sluggish trend. Absorption rates for studios improved from 42% to 50% year-over-year, primarily because new studio units only rose by 0.4%, far fewer than other apartment types. Meanwhile, larger units saw declining absorption rates:

1-bedroom units: Fell from 54% to 49%
2-bedroom units: Slightly declined from 51% to 50%
3-bedroom units: Experienced a notable drop from 56% to 51%

Why Is This Happening?

The current oversupply stems directly from aggressive construction during the pandemic. Developers raced to meet surging demand, leading to today’s high vacancy rates. But builders are now adjusting, with significantly fewer apartment permits being issued—nearly 10% fewer year-over-year.

Redfin’s Senior Economist Sheharyar Bokhari emphasizes, "Some landlords are slashing prices and offering concessions like free parking, but renters should know that these perks could start drying up soon.” The reduced permitting signals an eventual market tightening, empowering landlords to reclaim pricing power.

Investment Strategy: Preparing for the Shift

Short-term Pain

Investors currently face challenges, including lower rental yields, increased marketing costs, and higher concessions to attract tenants. Companies like Redfin report wider losses and margin pressure as they navigate this oversupplied environment.

Long-term Gain

Despite short-term struggles, there is a clear strategic opportunity. As fewer apartments are constructed, the market will inevitably transition back to a landlord-friendly state, where reduced competition could enable higher rent growth.

Investors should focus on:

Markets with better absorption, particularly in studio apartments.
Areas with stable economic fundamentals.
Companies effectively managing costs during this oversupply phase.

Redfin’s Digital Advantage

Redfin’s strategic shift towards digital tools and commission-based models positions it uniquely to navigate and eventually benefit from these market fluctuations. Despite current financial pressures, its long-term investment in technology-driven efficiency could provide a competitive advantage once the market stabilizes.

The Bottom Line

While today's apartment market is clearly renter-friendly, investors should anticipate a quick turnaround. The current oversupply is temporary—builders are already pulling back, setting the stage for a tighter market and higher rents in the near future.

Will landlords soon regain control, or is the market correction further out than investors anticipate? Share your views below!

Why Are New Apartments Sitting Empty—and Will Landlords Soon Turn the Tables on Renters?