REAL ESTATE NEWS

Rental demand across major U.S. markets is splitting into two distinct tracks, shaped by the widening gap between ownership costs and rental affordability. This bifurcation is forcing higher-income households to remain in core metropolitan rental housing while lower-cost ownership increasingly shifts prospective buyers into distant, more affordable zones on the outer edges of metropolitan statistical areas. At a recent rental market summit hosted by John Burns Research and Consulting industry discussed how this trend directly influences where new development pipelines are being planned and impacts lease-up projections for both prime inner-ring markets and far-flung affordable alternatives.

Chris Nebenzahl, Vice President of Rental Research at John Burns, noted that “it's about twice as expensive on a monthly basis to own a home as it is to rent the average apartment in the U.S.,” driving a material share of demand into the rental sector and sustaining occupancies even as rents remain flat or slightly negative in price-growth terms. The result, he said, is that absorption and retention are being buoyed by households for whom homeownership is no longer feasible in high-demand, inner-metro locations—especially where mortgage rates compound the affordability challenges.

The bifurcation also shapes developer and investor strategies. As Nebenzahl and Zach Nyberg, Vice President of Consulting, explained, developers monitor a “market-by-market, submarket-by-submarket basis” to determine the right timing and product mix for new projects. The Sun Belt and select suburban markets experience high absorption and sustained supply pipelines, but as Nyberg pointed out, “areas like Tampa, Southwest Florida and Fort Myers, the Carolinas, Charlotte, Raleigh, some pockets of Atlanta and a couple of other smaller tertiary markets around the southeast” have transitioned from oversupply toward a more balanced absorption, sometimes aided by heightened leasing concessions. In one instance, Nyberg observed up to eight simultaneous lease-up projects in the Wesley Chapel suburb outside Tampa during the pandemic boom, which only required limited concessions to draw tenants, an environment now replaced by steeper discounting as supply unwinds.

For less affluent households, the only path to homeownership is now found in “farther out areas of the market,” as Nebenzahl confirmed, where acquisition costs are lower but commutes and amenities are diminished. This divide is intensifying demand for rentals in cost-prohibitive urban cores, where a “renter by choice, renter by necessity” dynamic is emerging. Many would-be buyers “simply can’t afford it right now,” so they migrate to single-family rentals and built-to-rent products in affordable exurban zones, while higher earners remain in professionally managed, institutional multifamily or BTR communities closer to employment and lifestyle centers.

The influence of immigrants on rental and construction labor markets further complicates the picture. Nebenzahl explained that, while immigrants are “very, very important part of the rental world,” their impact is felt more acutely in the supply chain, particularly the availability of construction labor, rather than in absorption of institutional-grade, Class A rental properties. Most recent arrivals are not driving lease-up of premium product but are instrumental to ensuring projects can be built and delivered on schedule. Risks to development pipelines arise if immigration policy curtails the flow of skilled and unskilled labor needed for construction, especially as supply resumes in the next growth cycle.

Portfolio allocations and risk assessments must account for these diverging trends. Institutional capital increasingly gravitates toward BTR product in prime locations, chasing demographic strength among millennial families and baby boomers seeking maintenance-free lifestyles. Yet, Nyberg cautioned, “there is still a rent ceiling that a lot of developers are very well aware of,” necessitating smaller units and denser developments to keep pricing in reach—even for suburban and secondary markets. Meanwhile, the migration of immigrants into construction roles highlights the systemic supply-side risk: should policy shift or labor dynamics tighten, both future rent growth and asset stabilization in lease-up phases could be threatened.

As lease-up velocity and rent growth stabilize at low single-digit levels nationwide, the sector is poised for renewed momentum in 2026–2027 as supply pipelines slow and absorption remains resilient. Rent to income ratios are, by some measures, healthier than pre-pandemic levels—mainly due to income growth offsetting stagnant rents. This stability is patchy, however, and highly contingent on market, submarket, and the interplay of labor, capital and demographic migration. “The rental market, whether it’s BTR or apartments, is filling a needed void right now…as long as we look at the long-term trajectory, see the need for continued development, see the need for continued building…and to allow those renters to live where they want,” Nebenzahl concluded. “I think that’s crucial.”

Source: GlobeSt/ALM