Apartments Are Being Built at Record Rates. So Why Is Housing Still So Expensive?

It is a truth, universally acknowledged, that housing is expensive. A huge chunk of our budgets go to housing, and that's true whether you own or rent. 

But while housing prices tend to fluctuate, sometimes rising, sometimes falling, rental prices somehow manage to rise every year. And it seems to be getting much, much worse.

Median asking rent tops $2,000

Indeed, rents are at a record high, with Redfin data showing the median asking rent in August 2023 was $2,052. Even traditionally affordable areas are seeing record highs, with the median asking rent in the Midwest hitting $1,434.

These haven't been slow changes, either. Anecdotally, I've heard dozens of stories of rents going up by hundreds of dollars between one year and the next. And personally, our rent going up by $200 helped push my family into a move this year.

On the surface, you might think there's some kind of shortage going on. Are there that many new renters? Are they just not building enough new apartments? As it turns out, they're building a record number of new apartments -- just not the kind we need.

9 in 10 new developments are "luxury"

More than 1.2 million apartments were added to the market over the last three years. There are expected to be more than 460,000 new rentals on the market this year, and another 1 million added through 2025. 

Currently, we're seeing the highest rate of new apartment construction in the last 20 years.

So what's the problem? The same thing it always is: money.

About 89% of new apartments built in 2020 were "luxury" apartments aimed at mid- and high-income renters. In other words, of the more than 460,000 new apartments completed this year, only around 51,000 are affordable housing.

Considering that we're short of more than 7 million rental units for low-income households, the construction boom may as well not exist for many of the people who need it the most.

Relief on the horizon?

The brightside is that there may be some signs of the rental market topping out. Rental vacancies rates were up to 6.3% in the second quarter of 2023, up from 5.6% the year before. And some reports indicate that while prices aren't dropping everywhere, concessions -- such as a month or two rent-free -- are becoming increasingly common.

Ways to cut your housing costs

In the meantime, what can renters do to help their bank accounts? Unfortunately, a lot of the most common pieces of advice center around moving. And it's true, downsizing and/or relocating are certainly the most straightforward ways to cut your housing costs. Of course, white it may be straightforward, moving is rarely easy -- and never cheap.

What else can you do? You can try negotiating with your landlord or apartment complex. (This is a hit-and-miss tactic that may work better if you have a human landlord instead of a corporate overlord.) In some cases, agreeing to sign a longer lease can net you some savings. If you're handy, offering to fix up the place could also help you out in rent negotiations.

There's also the roommate option. Splitting expenses with a friend or coworker could help you cut costs. Just be careful to vet potential roommates -- perhaps by running a background and credit check -- and have them sign a lease before letting them move in.

Or, you could resort to what more and more young people are doing: living with family. Almost half of young adults now live with their parents, often due to their finances. This isn't uncommon in other cultures, and was even the norm in the United States until late last century, so it's interesting to see the stigma quickly wearing off.