The Once-Solid Rental Housing Market Shows Its Cracks

Alyssa Abkowitz

The pandemic has upended the rental market, which could get worse with the end of federal stimulus. But it’s also creating new opportunities in some locales

For most of the last decade, the rental housing market has been on a tear. At the end of 2019, national occupancy rates hit 96.3%, the highest level since 2000. New multifamily housing units had increased each year for the past eight years, with about 280,000 units completed in 2019, compared to 74,000 in 2012. And then the pandemic hit.

Now, there’s worry that the rental market, which is more vulnerable to the ebbs and flows of unemployment rates than the homeownership faction, may lose much of its steam. Already, coronavirus has created uncertainty for millions of renters, many of whom are starting to rethink living in such densely populated places. “There’s a tremendous amount of uncertainty regarding the trajectory of the rental market,” says Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm based in New York.

CoStar’s Prime Multifamily Index, which follows rental prices in large core coastal metro areas, fell 2.6% in the second quarter, after a 4.7% drop in the first quarter. Real estate firm CBRE, in its mid-year outlook, said it expects average rental rates to drop by 8.8%. Moreover, it expects vacancy rates to increase by more than three percentage points from a cyclical peak in the third quarter of 2019 to the expected trough in the last quarter of this year.


The data are also showing diverging trends when comparing large, coastal cities to up-and-coming markets in smaller towns. An August national rent report from online rental marketplace Zumper found rents in seven out of the ten most expensive cities decreased an average of 5% year over year. In New York City, for example, rents for one-bedroom and two-bedrooms were down 7% year over year, averaging $2,840 and $3,200, respectively. At the same time, the vacancy rate in Manhattan hit 4.33% in July, up from a typical 1.5 to 2%. “It’s the highest I’ve seen in the 14 years since I’ve tracked it,” Miller says.

But the opposite is happening in smaller towns. According to Zumper, rents in less expensive cities increased in August. Tulsa, Oklahoma, which is one of the cheapest cities the firm tracks, saw one-bedroom rents increase 5%, to $620, and rents for two-bedroom units tick up 1.2%, to $820. St. Petersburg, Fla., and Reno, Nevada, experienced 15% year-over-year rental increases for one-bedroom units.

For their part, builders aren’t betting on multifamily being a strong sector in the near future. The Multifamily Production Index from the National Association of Home Builders, which tracks developers’ confidence—a leading indicator for the market—remains relatively weak, according to a second-quarter report. The report also noted that vacancies are up 3 points, to 62, on an index scale of 0 to 100, indicating more vacancies. And nearly 8% of tenants missed their last rent payment. “Demand remains subdued due to elevated unemployment rates,” says NAHB chief economist Robert Dietz. That issue may continue to plague the market as the effects of the expiration of the $600 federal jobless benefit take root.

Another factor contributing to such uncertainty in the rental market is the stability of landlords’ finances. About 50% of them are small-business owners who often make the same or less than their tenants, according to Miller. If their tenants are unable to make payments, and eviction bans and/or repayment plans for renters remain in place, the landlords will bear the financial brunt. An American Bankers Association journal article noted, “Multifamily landlords are likely to see more strains going forward as governmental payments start to dwindle, legislative relief ends, and the extra liquidity flushing through the economy no longer keeps struggling businesses (and their employees) afloat.”


Changes to the rental housing market are in contrast to the home-buying market, which largely avoided a crash and has experienced bidding wars and price climbs in some regions. While economic uncertainty is one reason for the flagging rental market, the flip side to that is the emergence of first-time homebuyers. Many have realized amid the pandemic that city living is neither enticing, with amenities such as restaurants and entertainment shut down, nor necessary, with working from home increasingly encouraged.

 “You’ve got people living in stacked apartments who are saying, ‘I’ve got to get out of here,’” says John Campbell, managing director and housing analyst at Stephens. At the same time, people are seeing the advantages and opportunities afforded by a move.

Innovation in rental models could help ease some of the stress in the market. Rhove, for example, is a Columbus, Ohio-based startup that gives renters a financial stake in their buildings. When someone moves into the building, they’re given a small stake in the property that earns a 5% annual return on their investment and each year they live there, they earn more stakes. They can also buy more stakes on their own. As the building appreciates in value, so do the stakes. When the building sells, the renters cash out. “So what we’re creating is a situation where renters are given many of the financial benefits of ownership while maintaining the flexibility of renting,” co-founder Calvin Cooper told Fast Company. So far, the company has partnered with a handful of buildings in Columbus.


Rentberry is a San Francisco-based digital rental platform that streamlines standard rental tasks—think credit reports, scheduling a showing or view a virtual tour, signing rental agreements and sending maintenance requests—all through one platform to make renters’ (and landlords’) lives easier. It also allows you to see market intel regarding current rates to help renters decide how to negotiate and offer the best price, invaluable knowledge in markets where there may be more wiggle room on discounts or in, some cases, growing demand which could spur bidding wars. While bidding like this is more similar to home-buying, what’s better on the platform is that you can see what others are bidding—unlike the home-buying process, which is blind. The platform is available in more than 50 countries and also is the first rental platform to accept cryptocurrency.

PadSplit, based in Atlanta, is taking a more traditional approach to try to help solve the affordable housing crisis. It’s creating an Airbnb-like marketplace where homeowners can list rooms or parts of homes for long-term rentals. Think Silicon Valley tech enabling the serendipity of meeting a great roommate through the Village Voice Classifieds.

As Campbell says of these new ventures: “Consumers are used to pressing a button and magic happens. You go on Amazon and order a washer and dryer and it shows up the next day. Why shouldn’t innovation like that come to real estate, too?”