An Update on Rent Growth

Jordan Brooks
May 9, 2023

Despite the recent slowdown in rent growth, the national average effective rent ended April at $1,419 per unit per month, a 0.8% increase from the end of 2022. This is a slower pace than the 1.2% gain in the first four months of 2022, but it is still a gain. The average effective rent is now 17.4% higher than it was at the end of 2021. The average unit size is 882 square feet, so the national average effective rent per square foot is $1.61, a 0.9% increase since December.

Despite the slowdown in the category, average effective rent declines have not been the rule so far this year. Only nineteen ALN markets ended April with a lower average than they entered the year with – representing 13% of national markets. Almost one hundred markets have exceeded the national gain of 0.8% in the period.

Headwinds for 2023 Rent Growth

However, headwinds aside from stubbornly low demand remain for rent growth. The new construction pipeline is expected to deliver more new units than last year’s 400,000. Apartment demand has improved in recent months but remains lower than usual. In a typical year going back to the middle of last decade, national annual net absorption averaged roughly 300,000 units. Last year that total was only approximately 50,000 units and this year is all but certain not to reach 300,000 units. Even if it did, there would be a much larger gap between delivered units and net absorbed units than the industry has been accustomed to.

The rent increases of recent years, and inflation more broadly, have vastly altered the financial position of households relative to 2021. According to the Board of Governors of the Federal Reserve System, consumer debt service as a share of disposable income rose all of last year and is now back to its pre-pandemic level. Total outstanding credit card balances have been on a sharp upward trajectory since early last year and the Federal Reserve Bank of New York has reported that household credit card debt closed 2022 at a record high. Debt-fueled consumer spending is manageable in the near term as long as the labor market remains tight.

While the latest jobs report was largely positive and national unemployment ticked down slightly to 3.4%, the layoffs that began in the tech sector have now begun to spread to the finance sector and some of the large retailers. After the latest Federal Reserve rate hike in May it seems as though there is a reasonable chance for a pause in further hikes, and even the possibility of a small rate reduction later in the year. A lack of more rate increases would probably help the unemployment rate remain low, but the Fed aim for some time has been a considerable increase in the unemployment rate to help cool inflation.


The rent growth of 2021 and the first half of 2022 was astounding, and it lasted longer than the demand data would have indicated. The subsequent cool down happened rapidly. A monthly gain of 1% in July turned to a 0.2% gain just two months later. And yet, the bottom in the winter period, even as the nation was shedding net leased units, turned out to be a 0.3% decline in both November and December. 2023 is already back in positive territory.

Macroeconomic headwinds and geopolitical uncertainty provide the background for 2023 while within the industry, a near-term supply glut poses a challenge for rent growth. The lack of supply, fairly sticky prices, and elevated interest rates in the single-family sector are all making the jump to homeownership more difficult for many buyers. This should provide some level of support for Class A multifamily demand.

Also, many of the markets with an especially large number of deliveries expected this year are consistent high in-migration markets that need the supply in the longer term. Despite these mitigating factors, the volume of new supply is going to mean lower average occupancy and higher lease concession availability. Rent growth in 2023 will be harder to come by in concert with the aforementioned bigger picture hurdles.

It is likely that the industry is going to be more reliant on seasonal boosts this year. More typical seasonal patterns do appear to be emerging after being absent from 2020 through 2022. This means that demand should improve in the coming months and keep rent growth in positive territory. The question will be what the picture looks like as the fall and winter months arrive.

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