U.S. Rental Affordability Improves Amidst Moderating Rent Growth and Increased Concessions

Rental Affordability Reaches Four-Year High

U.S. rental affordability has improved to its best level in four years, with the median household income required for rent nationwide falling to 28.4%. This marks a slight decline from 28.8% a year ago and positions it below the 30% threshold often deemed a financial burden for housing, according to a Zillow report released on October 17, 2025. This enhanced affordability is a direct consequence of a cooling in rent growth and an unprecedented level of landlord concessions.

Landlords are currently offering concessions on 37.3% of rentals listed on Zillow, a significant increase from 14.4% in 2019 and a record high for September. National rent growth for multifamily units has eased to 1.7% over the last year in September, representing the second-lowest annual growth recorded since 2021. Similarly, single-family rents observed a 3.2% year-over-year increase, which is the smallest annual growth in Zillow records dating back to 2016. This trend follows a substantial increase in new apartment construction in 2024, with more multifamily units completed than in any year over the past half-century, as builders responded to heightened demand for housing during the pandemic.

Analysis of Market Dynamics and Economic Impact

The shift in rental market dynamics carries significant implications for financial markets and the broader economy. The increased supply of rental units, particularly in regions with fewer zoning restrictions like the South, has been a pivotal factor in moderating rent increases. From a macroeconomic standpoint, improved rental affordability could translate into increased discretionary income for households, potentially stimulating consumer spending across various sectors.

Crucially, the deceleration of rent growth contributes to a broader moderation of inflation, a key concern for central banks. Stephen Brown, an economist with Capital Economics, highlighted the importance of this trend, stating,

"Rent was one of the key factors keeping inflation elevated. That's obviously quite a good sign that overall inflation is probably now heading back towards 2%." The Consumer Price Index (CPI) measure of shelter inflation has declined from a peak of 8.3% in early 2023 to 5.2%, a trend Capital Economics anticipates will continue, forecasting annualized rent growth to fall below 3% by the end of 2025. This easing of inflation pressures could bolster the Federal Reserve's confidence as it considers future monetary policy adjustments, potentially leading to interest rate reductions for the first time since March 2020.

For the Real Estate Sector, particularly Real Estate Investment Trusts (REITs) and property management companies, the subdued rent growth and rising concessions could exert pressure on revenue streams and profitability. Firms like Paramount Group (PGRE), an office REIT, are already navigating challenges such as declining occupancy rates and lower asking rents. However, a J.P. Morgan report from October 17, 2025, suggests that the rental market, especially single-family rentals (SFRs), presents a resilient opportunity for investors due to durable demand and favorable demographic trends, particularly as homeownership becomes less attainable.

Broader Context and Regional Variations

This recent improvement in affordability contrasts with earlier 2025 reports that highlighted ongoing renter financial pressure and rent-to-income imbalances. The current trend underscores a market where increased supply is beginning to meet demand, offering relief to renters and rebalancing the housing market. Orphe Divounguy, a senior economist at Zillow, emphasized this, noting,

"Markets that built more — and faster — are seeing that investment pay off with more renters able to comfortably afford an apartment. It's a reminder that housing costs can be tamed when policy allows supply to keep up with demand."

Regional variations in rent growth are evident. Zillow's data indicates that apartment rents are falling fastest year-over-year in Sun Belt and Mountain West regions, including Austin (-4.7%), Denver (-3.4%), Phoenix (-2.2%), and Orlando (-0.8%). Conversely, areas with stricter building regulations or high demand, such as Chicago (6%), San Francisco (5.6%), and New York (5.3%), are experiencing higher rent growth.

Future Outlook

Looking ahead, the rental market may face a shift. CoStar Group, a leading real estate analytics firm, forecasts that as the current influx of new apartment supply is absorbed, rents are expected to rise in 2025 and 2026. This prediction is based on a projected decrease in multifamily property completions, from 533,000 units in 2024 to an anticipated 250,000 units in 2026, alongside a sharp decline in construction starts. Jay Lybik, CoStar's national director of multifamily analytics, observed that "After declining since the first quarter of 2022, national rents are increasing once again, reflecting the end of oversupply conditions in most markets." Should demand remain consistent, the market could transition from oversupplied to undersupplied, potentially causing vacancy rates to drop and rent growth to accelerate above historical averages. The long lead times for construction suggest the market may not quickly adapt to a potential supply shortage, which could exacerbate future price increases for renters.