For over a year, renters in many major US cities have seen some relief as rent prices have generally trended downwards across the top 50 metropolitan areas. However, clouds may be gathering on the horizon. According to the Realtor.com® February Rent Report, a significant slowdown in new multifamily housing permits could pave the way for higher rents in the near future.
Rent Prices Have Been Declining — But for How Long?
Since mid-2023, renters in major U.S. cities have enjoyed some relief as prices cooled following the pandemic surge. Rents have been on the decline for 19 consecutive months. However, that trend may not last. In 2024, only 294,000 multifamily units were permitted in the top 50 metros — significantly lower than the 318,000 units approved during the peak of the pandemic in 2020.
Danielle Hale, Chief Economist at Realtor®.com, explained, “The nation is short 3.8 million homes… As builders attempt to right-size their construction pipelines, multifamily builders have made some headway, evidenced by rising vacancy rates. Still, the low level of permitting, particularly in fast-growing rental markets, could trigger a return to rising rents.”
Tighter Housing Supply = Higher Rents
Basic economics tells us that when demand is high and supply is limited, prices usually increase. This principle applies directly to the rental market.
The Realtor.com® report highlights this dynamic:
- Markets with Low Permits & Rising Rents: In nine of the top 50 metros, multifamily permitting in 2024 was lower than in recent history, and these areas simultaneously saw rents increase. Examples include New York, NY, Kansas City, MO, and Detroit, MI. In these areas, the lack of new supply could exacerbate existing demand and push rents even higher.
- Markets with High Permits & Falling Rents: Conversely, nine other major metros saw more multifamily permitting in 2024 compared to the previous five years, and these areas experienced year-over-year rent declines. Notable examples include:
- Birmingham, AL.: Rents dropped 5.4% YoY, while permits rose 22.1% above the 5-year average.
- Cincinnati, OH: Rents fell 3.3% YoY, with permits up 29.9%.
- Cleveland, OH Rents decreased 3.0% YoY, as permits grew by 37.9%. In these cities, the increased supply pipeline is putting downward pressure on rent prices.
Other Factors At Play
While permitting activity is a major driver, other elements influence the rental landscape:
- Federal Employment Impact: Despite potential shifts in federal employment affecting some for-sale housing markets, the impact on rents in cities with high concentrations of federal workers (like Washington D.C., Baltimore, San Diego) appears mixed and hasn’t shown a clear trend yet. Rents were up YoY in D.C. (+3.3%), Oklahoma City (+2.0%), and Baltimore (+1.25%), but down significantly in San Diego (-6.0%) and slightly in Virginia Beach (-1.5%).
- Demand for Larger Units: With homeownership remaining challenging for many, renters are often staying put longer, driving demand for larger spaces. Over the past five years, two-bedroom units have seen the most significant rent growth (18.3%), compared to one-bedroom (14.3%) and studio units (9.7%). While historically more volatile, studio rents saw a modest dip (-0.8% YoY in February 2025*), aligning closely with one- and two-bedroom units (both -0.7% YoY).
Summary
The interplay between construction permitting and rent prices underscores the importance of supply in housing affordability. In metros where building activity is slowing and demand remains strong, renters may soon face rising prices. Meanwhile, cities investing in new multifamily housing are creating downward pressure on rents — a win for affordability.
For renters, now is the time to watch local building trends. For developers and policymakers, increasing permitting activity in key markets could be a vital strategy for keeping rent growth in check.
Whether you are a renter or an investor, it is best to consult a local and knowledgeable real estate agent in your market. Are you thinking about buying or selling real estate in the South Florida area? We can help! Contact Natasha at Live South Florida Realty, Inc. Also, be sure to download the free Florida Home Search App for your smartphone or tablet!
