Landlords aren't just lowering rents — they're handing out perks like gift cards and free parking

Discounts from early in the pandemic, for those lucky enough to nab them, eventually gave way to hefty rent hikes. Lines for apartment viewings stretched for city blocks, and bidding wars erupted. Across the country, the rallying cry remained the same: The rent is too damn high.

Look closely, though, and you'll see that 2023 is shaping up to be the year that tenants claw back bargaining power from landlords. It may not feel that way just yet, but double-digit rent increases and eye-watering lease demands are now a thing of the past. RealPage, a real-estate-software company, declared in a report last month that the market was "rapidly shifting in favor of renters." A rise in the number of empty apartments, a decline in the number of people looking for a place of their own, and a coming influx of apartment supply will force landlords to compete more fiercely for tenants. And when landlords compete, tenants win — with concessions like months of free rent, free parking, and gift cards.

There's even a chance some Americans will see their rent go down this year. According to housing economists, if apartment demand doesn't pick up, or if the US economy slides into a recession, the rent that landlords ask for new leases could fall nationwide on an annual basis for the first time since the global financial crisis. And renters in some overheated markets with a lot of new supply popping up could see rents drop significantly, even if the economy steers clear of a significant downturn. "If you're looking for a place to live, it should be a lot easier this year to find inventory," Chris Salviati, a housing economist for Apartment List, told me.

After a couple of years in which landlords reigned supreme, the tide is turning. Welcome to the year of the renter.

The case for falling rent

Something strange is happening in the apartment market. The US job market remains healthy, and the unemployment rate hit a 50-year low in January despite a wave of layoffs in high-profile industries. Wage growth is strong, and people have plenty of savings. Yet property managers are having a harder time getting new renters through the front door. The national vacancy rate for apartments jumped to 5% in December, up from a record seasonal low of 2.5% the year prior, according to RealPage Market Analytics.

Most housing economists blame the pullback in rental demand on worries about the future. Despite the strong financial situation in which many Americans find themselves, months of recession warnings and stubborn inflation, as well as the soaring rent prices of the past few years, are persuading would-be apartment hunters to hold off on their searches. A recent college grad or a high earner who's ready to ditch their roommates and get a place of their own, for example, might be surveying the landscape and deciding it's more prudent to stay put or move in with family instead, Jay Parsons, the head of economics for RealPage, told me.

With more apartments sitting open and fewer people looking to move into them, landlords could be forced to hold rents steady, or even cut prices, to entice prospective tenants to pick their units. Asking rents, which measure the rents paid by people moving into a new apartment, rose just 2.4% year over year in January, the smallest annual increase since May 2021 and about one-sixth of the rent increase from a year earlier, according to Redfin. And as every month passes, the deals are getting better — the median US asking rent fell 1.9% between December and January, from $1,979 to $1,942, Redfin reported. Zillow's measures differed slightly, but the takeaway was the same: The last few months of 2022 marked "the biggest monthly declines in rent for any time of year that we had seen in our data going back to 2015," Jeff Tucker, a senior economist at Zillow, told me. "It's a pretty major pullback by renters."

A dramatic uptick in new supply over the next couple of years is poised to exacerbate the headaches for landlords and open up more opportunities for renters. More than 971,000 apartment units were under construction across the US at the end of 2022, the second-largest number on record. About 575,000 multifamily units are scheduled to be completed this year, RealPage reported. An additional 39,000 single-family rental homes are also under development, according to Yardi Matrix, a provider of data for commercial real estate.

"This timing is striking, to see so many units in the pipeline that will try and lease up right as the market has already softened substantially," Tucker said. "That could contribute to rent growth staying softer longer and maybe even seeing some rent declines."

In the Nashville, Tennessee, metro area, for example, the 26,757 units that are either under construction or in the lease-up stage will expand the apartment supply there by more than 15% in the next couple of years, RealPage said. Austin, Texas, will see similar growth, with roughly 42,000 units under construction. In Phoenix, the nearly 47,000 units at the same stage of development will expand the supply by 12%.

Parsons expects to see more markets where rents fall year over year, he told me, especially high-rent downtown areas where a lot of supply will be coming online. "We've already heard anecdotally that some renters are seeing even rent reductions on renewals," Parsons told me. "I don't think that's going to happen across the board for everybody. But you're going to see pockets where you're seeing more of that."

Six markets, including Phoenix and Las Vegas, have seen year-over-year drops in asking rents, according to RealPage. Parsons said he expected more markets to follow suit, including Sacramento, California, and Pensacola, Florida. Apartment List's Salviati agreed that many Sun Belt markets in the South and West, where rents have exploded in recent years, would see "pretty strong cooldowns." Tech hubs like San Francisco, Denver, and Seattle may also face softer rental markets as the industry struggles and the supply of apartments in those areas — especially in the latter two cities — increases.

The summer months will offer a more-telling picture of the rental market, since that's when demand for apartments is typically highest, Sheharyar Bokhari, a senior economist at Redfin, told me. Even if more demand does come back, new deliveries of apartments over the next year should leave slack in the market, which will put more pressure on rents to come down, he said.

"I think, year over year, it is possible that soon we'll see rents fall nationally," Bokhari said.

But a fall is not guaranteed

While local markets face their own ups and downs, it takes a lot for rents to fall nationwide on an annual basis. Unlike for-sale housing, the rental market has been remarkably immune to significant price declines in the past, even during rocky periods for the economy. In the aftermath of the Great Recession, for example, the consumer price index for rent flatlined only for a brief period before continuing its march upward. People may cut back on other expenses, but they still need a place to live. For that reason, most housing economists are ultimately projecting modest rent increases this year, rather than a nationwide decline. RealPage forecasts that rents will rise about 3% nationwide this year, in line with a typical year prior to the pandemic. But given the factors already weighing on rents, a continued downturn in the economy or a recession would change that calculus, according to some experts.

"If we were to enter a recession this year, and unemployment were to rise, I wouldn't be surprised to see rents continue sliding this year," Salviati said. "But assuming that we avoid a recession, then I think there's probably not a strong likelihood that rents are going to keep falling."

Even in the event of a sustained downturn in rents, there's no getting around that there's little chance of rents reverting all the way back to pre-pandemic levels — the typical renter is still paying 20% more for a new lease than they were before the pandemic. In December 2020, the median rent nationwide was $1,649. That figure has risen more than $300 since then.

"A lot of people talk about, 'Well, rents have hit a ceiling. There's only so much people are willing to pay,'" said Jon Leckie, a researcher for Rent, a platform that helps landlords market their properties. "The way I look at it is we've set a new floor."

There's also reason to believe that apartment demand will come back this year if inflation continues to ease and people get a better idea of where the economy is headed. In that scenario, a recent college grad with a stable job might decide they can afford to get that first apartment of their own after all. If this happens at a large scale, it should keep rents from falling drastically, Parsons told me. "Logic would tell us that, given that job growth is still strong, there's got to be pent-up demand right now," he said.

In markets where rents are more likely to fall, the benefits for renters won't be distributed equally. Because the vast majority of new-apartment construction falls within the middle and upper rent tiers, tenants at those price points can expect to have the most options — and the most negotiating power.

There's the added risk that apartment developers ditch plans for future projects as they confront higher interest rates and weaker demand for their units, which would worsen the supply shortage in the years ahead. We're already seeing signs that developers are growing more skittish. Developers started construction on only 33,600 multifamily units nationwide in December, the lowest figure in nearly two years, according to US Census Bureau figures.

For now, though, the wave of supply that's already underway should keep rents in check over the next couple of years. The slowdown will be particularly pronounced in downtown areas where cranes dot the horizon and high-rent-building owners are bracing for thousands of new units to hit the market. The competition among landlords will mean better deals for renters — this year, especially, it could pay to shop around when your lease runs out.

Even if landlords manage to keep their rent growth positive, tougher competition may entice them to hand out incentives that aren't reflected in asking rents, like a month or two of free rent or a discount on parking.

A return to normal rent growth would still be good news for renters who have watched their housing costs skyrocket since the start of 2021. Now, as landlords shift their focus from jacking up rents to filling up units, renters can once again look ahead to better days.

James Rodriguez is a senior reporter for Insider.