Why Rents Aren’t Falling — Even as Demand Cools

Demand cooling doesn't equate to a collapse; rather, it's a moderation from the frenzied highs of 2021-2023, when remote work and urban exodus fueled bidding wars for apartments. Today, with more people returning to offices and economic uncertainty prompting caution, fewer households are relocating or upgrading. Yet, rents remain elevated due to a confluence of structural issues: barriers to homeownership keeping potential buyers in the rental pool, uneven supply growth that fails to match needs in key segments, escalating costs for property owners, and deep-seated demographic shifts. These factors create a "sticky" rental environment where prices decline slowly, if at all, in many regions.

Consider the broader context. The U.S. rental vacancy rate has edged up to about 6.9% in mid-2025, a slight increase from prior years, signaling some relief in competition for units. Multifamily construction has hit near-50-year highs, with over 500,000 new apartment units expected to come online this year, particularly in Sun Belt states like Texas and Florida. This influx has led to rent declines in oversupplied markets—August 2025 marked the 25th consecutive month of year-over-year drops in some categories, with national averages flattening at around $1,717. However, these trends are far from uniform. In high-demand coastal cities like New York and San Francisco, or growing tech hubs like Austin, rents continue to climb modestly, driven by persistent underlying pressures. Even where growth has stalled, absolute prices remain 21% higher than pre-pandemic levels, underscoring that "cooling" is relative.

Persistent Demand Amid Homeownership Barriers

One of the primary culprits keeping rents afloat is the enduring strength of rental demand, fueled by insurmountable hurdles in the homebuying market. While overall housing demand has cooled—with fewer job relocations and a stabilizing population mobility post-COVID—the pool of renters hasn't shrunk as anticipated. Instead, many would-be homeowners are trapped in the rental cycle due to soaring home prices, elevated mortgage rates, and a chronic shortage of entry-level housing.

In 2025, the median home price in the U.S. lingers around $400,000, a figure that's outpaced wage growth for years. Mortgage rates, after dipping briefly, have hovered above 6% amid inflationary pressures and Federal Reserve caution, making monthly payments unaffordable for many middle-income families. The wage required to afford a typical apartment has dropped to about $63,680—the lowest in nearly three years—yet for homeownership, the bar is set much higher, often requiring incomes exceeding $100,000 in major metros. As a result, renting becomes the default option, sustaining demand even as economic growth slows to around 1.4% GDP this year.

This "lock-in" effect is particularly pronounced among millennials and Gen Z, who face student debt burdens and stagnant real wages. Surveys indicate that 63% of renters cite homeownership costs as the main reason they continue renting, with many delaying life milestones like marriage or starting families due to financial strain. Additionally, former homeowners—31% of current renters—have shifted back to apartments, citing rising property taxes, maintenance fees, and insurance premiums that make owning less viable. In this environment, demand for single-family rentals (SFRs) has surged, with rents up 4.4% year-over-year, as families seek more space without the commitment of buying.

Economists note that this pent-up demand will persist through 2029, as inflation outpaces wage gains, keeping homeownership elusive for a growing segment of the population. Even with some cooling—such as reduced corporate relocations— the rental market absorbs these households, preventing sharp price drops. In essence, the cooling is more about a slowdown in new entrants than a mass exodus from renting, maintaining upward pressure on prices.

Supply Constraints and Regional Imbalances

While new apartment construction has provided some breathing room, supply remains a bottleneck that props up rents. The U.S. has seen a boom in multifamily developments, with completions up 12.4% year-over-year, but this hasn't translated into across-the-board relief. Multifamily starts have actually declined 25% from 2023 peaks, limited by high financing costs, zoning restrictions, and new tariffs on building materials like steel and aluminum, which threaten to hike construction expenses by up to 25%.

This uneven supply growth creates regional disparities. In the Sun Belt, where building has been rampant—Austin permitted 64.5 multifamily units per 10,000 residents—rents have fallen, sometimes by double digits. However, in the Northeast and West Coast, where land scarcity and stringent regulations stifle development, supply lags far behind demand. Cities like New York and San Francisco have seen rents stabilize at high levels, with vacancy rates below 5%, as new units are quickly absorbed.

Moreover, the type of supply matters. Much of the new inventory is luxury apartments, targeting higher-income renters, while affordable and mid-tier options remain scarce. This mismatch exacerbates price stickiness in lower segments, where demand from cost-burdened families is unrelenting. Corporate investors, owning a growing share of SFRs, often prioritize steady returns over price reductions, further insulating the market from downturns. As one economist put it, "Supply is increasing, but not where or how it's needed most," leading to a scenario where overall rents cool modestly but don't crash.

Rising Operational Costs for Landlords

Beyond supply and demand, landlords' escalating expenses play a pivotal role in rent persistence. Inflation has driven up property taxes, insurance, and maintenance costs, forcing owners to pass these on to tenants to maintain margins. In 2025, commercial property insurance rates have risen 10-20% in many states due to climate risks and reinsurance hikes, while labor and material costs for repairs remain elevated post-supply chain disruptions.

For smaller landlords, who own the majority of units, these pressures are acute. With low profitability already a concern—exacerbated by concessions in competitive markets—many opt to hold or incrementally raise rents rather than lower them. Global trade policies, including tariffs, add another layer, potentially slowing future supply and keeping current prices firm.

Demographic and Economic Factors

Demographic trends amplify these issues. An aging population—now 30% over 55—demands more independent living units, boosting rental needs. Meanwhile, economic volatility, including job market shifts and consumer confidence dips, keeps households renting longer. These factors ensure demand, though cooled, remains robust enough to support high rents.

Looking Ahead

In conclusion, while demand cools and supply grows, rents aren't falling dramatically due to entrenched barriers, uneven development, cost pressures, and demographics. For renters, this means continued vigilance; for policymakers, it underscores the need for targeted reforms like zoning changes and incentives for affordable housing. As 2025 progresses, modest relief may emerge, but true affordability will require systemic shifts.