Michael Greene

Here's something fascinating happening in the apartment market right now. The cheapest, oldest apartments (Class C) are getting crushed right now. But ONLY in cities that just delivered tons of new apartments. Let me show you the numbers: Denver: Class C rents down 13.9% Naples: Class C rents down 13.5% Austin: Class C rents down 13.3% Phoenix: Class C rents down 10.5% San Antonio: Class C rents down 7.2% Dallas: Class C rents down 6.5% What do all these cities have in common? They just absorbed a massive wave of new apartments. But here's the twist... In cities that DIDN'T get a big supply wave? Class C rents are actually RISING. 20 cities saw Class C rents go UP more than 3%. 19 of those 20 cities had supply BELOW the national average. So what's going on? It's basically musical chairs. When a brand new luxury apartment opens up, where do those renters come from? They don't appear out of thin air. They move from slightly older apartments. Those apartments now have vacancies. So they drop their rents to compete. That pulls in renters from even older apartments. And down the chain it goes. Eventually it hits the oldest, cheapest apartments at the bottom. And here's why they get hit the hardest: People living in Class C apartments are already spending a huge chunk of their paycheck on rent. To fill empty units, landlords have to cut prices A LOT. Sometimes enough to attract people who couldn't afford market-rate apartments before. It's like a waterfall effect. The water (new supply) at the top pushes everything down. But here's the important part: This proves that building new apartments - even "luxury" ones - reduces rents all the way down the spectrum. If it was just an affordability crisis, you'd see Class C rents falling everywhere. In high-supply cities AND low-supply cities. But we're not seeing that. We're seeing a perfect split: Lots of new apartments = falling Class C rents Few new apartments = rising Class C rents New supply at the top creates relief at the bottom. Also: wages have been growing faster than rents for 3 straight years. More people can afford apartments today than before. The bottom line? This is what happens when you actually build housing. Supply works. (Chart and analysis from Jay Parsons - one of the sharpest real estate economists out there)