Half of renters in the United States have found themselves paying more than they can afford, following years of surging rents. But an increase in the construction of multiple-unit buildings has boosted the supply of apartments, which is slowly beginning to rein in runaway rents.

Nationally, rents declined annually in December for the eighth straight month, according to Realtor.com’s monthly report. The median asking rent was $1,713, which was down $4 from November and down $63 from the July 2022 peak.

However, median rent is still $309 higher than the same time in 2019, before the pandemic. That’s a 22% increase.

And people have been feeling it. In some places, rents aren’t dropping at all. Rent is just increasing at a slower pace.

Still, even if rents aren’t dropping like a rock, they aren’t expected to be skyrocketing in the same way this year.

This may come as some relief to the 22.4 million households who, according to Harvard University’s Joint Center for Housing Studies, pay more than a third of their income in rent.

Paying anything above the standard 30% threshold is commonly considered a cost burden.

What’s more, 12 million of those renters are severely cost burdened, which means they are spending more than half their income on housing.

The report reveals several disturbing records, including the record-high number of renters in housing they cannot afford and a record-high number of people who are homeless, said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies.

In addition, the report found that evictions are rising as pandemic protections have expired and a record-high number of income-eligible renters can’t get assistance as rental support falls short.

Rents are cooling off but affordability remains untenable

“Rental conditions are softening, but affordability conditions are worse than ever before,” said Whitney Airgood-Obrycki, senior research associate at the Harvard center, who presented some of the report’s findings.

Following changes in housing needs during the pandemic and an already existing low supply of multifamily housing in some markets, rents surged in 2021 and 2022. But that has changed in 2023 thanks to increased supply, the report showed.

Rent growth peaked at a record breaking 15% annually in the first quarter of 2022, before starting to slow. By the end of 2023, rents were growing by just 0.4% annually.

Even cities with the most intractable rents are seeing some cooling.

In November rents dropped in Manhattan for the first time in 27 months. The median rent fell to $4,000, down 4.6% from October and down 2.3% from the year before, according to a report from the brokerage firm Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants.

“We’re seeing supply and demand switch places in real time,” said Anthemos Georgiades, chief executive of Zumper, an online rental marketplace. “Pandemic-fueled migrations have slowed just as new multifamily buildings are coming online in many markets.”

He added that winter is a slow time for renters to move, which is driving demand even lower right now.

“Renters have more leverage right now than anytime in recent memory,” Georgiades said.

New supply helps, but may not last long

Multifamily building has been booming at a pace not seen in decades.

About 436,000 multifamily units were completed in the third quarter of last year, on a seasonally adjusted basis, which was the highest level since 1988, and up about a third from pre-pandemic levels, according to the Harvard report.

And there are more in the pipeline.

The number of multifamily units under construction peaked in July at over 1 million, the highest level on record, according to the US Census Bureau. While the number has stayed at a historically higher level since then, it has been ticking down on a seasonally adjusted annualized basis.

Builders are facing higher costs due to interest rates on their loans, material costs and land costs, and are already pulling back on building. As a result, the National Association of Home Builders forecasts that multifamily construction will decrease by about 20% next year.

While the increase in new construction and available apartments has been a boon to the market, there may not be new units coming at the same pace in the future. That’s despite large demand from Baby Boomers and Millennials, and also Gen Z aging into apartment renting.

Without continued new supply in addition to enhanced rental support, the Harvard report concludes affordability will remain a critical concern for many renters.

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