After a period of relative stability in the rental market, experts predict that rents in the U.S. will begin climbing again by 2025 or 2026. The rental market saw significant increases throughout the early 2020s, but a surge in new apartment construction and economic shifts helped slow rental price growth. However, several key factors—including a slowdown in apartment development, sustained high mortgage rates, economic policies, and investor strategies—are now pointing to an imminent resurgence in rental prices.
For renters, property managers, and investors, understanding these trends is essential for navigating the changing market. Let’s break down the primary reasons why rents are likely to climb again in the coming years.
1. The Decline in New Apartment Construction
A major factor influencing rental prices is the rate of new apartment construction. In recent years, developers have been building multifamily housing units at an accelerated pace, particularly in response to the housing shortage that became more pronounced during the pandemic. However, this construction boom is starting to slow.
Key Statistics on Apartment Construction:
- As of mid-2024, the annual pace of multifamily-building starts had fallen 22% compared to the previous year.
- This represents a 41% drop from the peak in April 2022.
- Many large-scale apartment projects that started during the boom years will be completed in 2025, but the pipeline for new developments beyond that is shrinking.
Why is this happening? Developers are facing higher construction costs, rising interest rates, and financial challenges that make new projects less viable. Many are choosing to delay or cancel developments, meaning that once the current wave of new apartments is absorbed into the market, there will be a shortage of available units—leading to increased competition and higher rents.
How This Affects Renters and Property Managers
- Renters may face fewer housing options in urban areas where demand is already high.
- Property managers could benefit from stronger demand and fewer vacancies, allowing them to justify rent increases.
- Investors in rental properties may see rising returns as rental demand outpaces supply.
Source: Wall Street Journal – “Apartment Construction is Slowing”
2. Persistent High Mortgage Rates Keep Renters from Buying Homes
Another key factor driving rental prices is the ongoing challenge of high mortgage rates. Many prospective homebuyers who might otherwise transition from renting to owning are being forced to stay in the rental market due to affordability constraints.
Mortgage Rate Trends:
- In 2025, mortgage rates are expected to average 6.3%—a slight drop from 2024’s 6.7% but still significantly higher than historical norms.
- Before 2020, mortgage rates hovered around 4% on average, making homeownership more accessible.
- High borrowing costs discourage first-time homebuyers, keeping them in rental properties for longer than expected.
As long as mortgage rates remain elevated, fewer people will be able to purchase homes, increasing demand for rental properties. The longer people rent instead of buy, the more pressure builds on the rental market, leading to price hikes.
Who This Affects:
- Young professionals and first-time buyers who planned to buy homes may have to keep renting longer.
- Landlords and property managers could see increased stability with longer-term tenants.
- Apartment investors are likely to benefit from sustained rental demand.
Source: NY Post – “Mortgage Rates Expected to Stay Above 6%”
3. Economic Policies and Supply Chain Challenges
Government policies and broader economic factors also play a role in shaping the rental market. Policies affecting labor, construction materials, and immigration could indirectly impact rent prices.
Key Economic Considerations:
- Construction Costs: Tariffs on imported materials (such as lumber and steel) could raise the costs of building new housing.
- Labor Shortages: Stricter immigration policies might reduce the available construction workforce, delaying projects.
- Zoning and Regulation Delays: Stricter zoning laws and bureaucratic hurdles can slow the approval process for new apartment developments.
These factors contribute to a slowdown in new housing supply, exacerbating the existing rental shortage. Without new developments to meet growing demand, rents are likely to climb.
Source: Wall Street Journal – “Landlords Predict Higher Rents in 2025”
4. Investor Behavior and Market Trends
Real estate investors are already positioning themselves for a rental price rebound. Institutional investors and private equity firms have been acquiring large numbers of rental properties, expecting that a slowdown in new construction will drive rents higher.
What This Means for the Market:
- Investors are betting on a tighter rental market with rising prices.
- Some landlords may hold units off the market temporarily to take advantage of future price increases.
- Renter competition will intensify in key metropolitan areas with limited new development.
As investors anticipate higher rental income in the coming years, they are pricing in these expectations—sometimes even raising rents preemptively.
Source: Wall Street Journal – “Investors Bet on Rising Rents”
What This Means for Renters and Property Managers
For Renters:
- Be prepared for potential rent increases starting in 2025.
- Consider signing longer-term leases in areas where rents are still relatively low.
- Monitor new developments—some areas with ongoing construction could offer move-in incentives before rents climb.
For Property Managers & Landlords:
- Expect stronger rental demand and fewer vacancies in high-demand areas.
- Evaluate rent pricing strategies to align with market trends.
- Consider property upgrades to justify rental increases while maintaining tenant satisfaction.
For Real Estate Investors:
- Look for investment opportunities in areas expected to see supply shortages.
- Factor in potential policy changes that could impact the pace of new developments.
- Monitor economic indicators like mortgage rates and job growth to anticipate market shifts.
Conclusion: Rising Rents Are on the Horizon
While rental price growth slowed in recent years, all signs point to a resurgence in 2025 and 2026. With fewer new apartments being built, high mortgage rates keeping renters from transitioning to homeownership, economic policies affecting construction costs, and investors banking on a rental price rebound, the conditions are set for rising rents across the U.S.
Renters should prepare for potential price hikes, while property managers and investors may find opportunities to maximize returns. The rental market is always evolving, and those who stay informed will be best positioned to navigate these upcoming changes.
Source:
Forbes – “Expect Rents To Start Climbing Again In 2025 Or 2026”