Rents are falling in some hotspot cities due to a 'timing mistake' by homebuilders

Rents in Austin have dropped around 8% since mid-2023, while rents in cities like New York and Chicago have risen by up to 16%, according to a study by real estate consultant Aziz Sunderji. Sunderji attributes the disparity in rent trends across major US cities to a "timing mistake" made by homebuilders. He explains that cities experiencing increased supply of housing in expensive markets with a decrease in new resident inflows saw their rents drop, while the impact of the local labor market, including remote work and tech jobs, was minimal.

Sunderji suggests that developers might have responded to early demand surges without anticipating a slowdown, resulting in an excess of housing inventory. This mismatch between supply and demand led to the decline in rents. Furthermore, Austin experienced a slowdown in migration from other parts of the US between 2021 and 2024, causing housing demand to slow.

The cities that have seen rent declines, including Austin, San Antonio, Denver, Phoenix, and Dallas, all had high rent valuations and a deceleration in migration, except Denver. In contrast, cities like New York, San Francisco, and Chicago, which have experienced strong rent growth since mid-2023, had home valuations near historical norms and experienced fewer residents moving away to other parts of the country.

Sunderji also found that remote work and tech jobs had minimal impact on lowering rents, as cities with high levels of tech and remote workers, such as New York, San Francisco, Seattle, and Boston, have seen large rent increases. Additionally, weather patterns, including warm winters, did not play a significant role in the study, according to Sunderji.