The Real Impact of "Luxury" Apartment Construction on Rent Prices

Let’s set the record straight: When developers flood the market with so-called "luxury" apartments, they’re not just catering to the wealthy. The ripple effect of this massive influx of supply sends shockwaves through the entire rental market, driving down rents across the board—even in the most affordable, working-class neighborhoods. This isn't speculation; it's happening right now.

Take a hard look at the data. In 21 U.S. markets, rents for Class C apartments—those older, less glamorous units—are plummeting by at least 4% year-over-year. What’s the common thread? You guessed it: an oversupply of new housing. In all but one of these markets, the rate of new construction is well above the national average.

And where’s this trend most pronounced? Florida, the land of endless growth, where nine metro areas are seeing Class C rents tanking by more than 4% annually, thanks in part to the new Live Local legislation that keeps the construction boom alive.

But it’s not just Florida. Look at Austin, Phoenix, Salt Lake City, Raleigh/Durham, and Atlanta—markets that have been swamped with new, high-end apartments. Class C rents are down by at least 5% in these cities. And don’t forget Tampa, Dallas, Charlotte, and Orlando, where rents have dropped by at least 4%. Even smaller cities like Provo, Greenville, Colorado Springs, and Wilmington, NC, aren’t immune.

Here’s what the establishment doesn’t want you to hear: This rent drop isn’t because of a lack of demand. These markets are still magnets for people and jobs. Even with some moderation in growth, these metros are leading the nation in net absorption. The demand is there; it’s the supply that’s doing its job.

Now, let’s dig into the numbers. In many of these markets, Class C rents are falling even faster than Class A rents. Why? It’s a process called "filtering." When you build a lot of high-end apartments, wealthier renters move up the ladder, leaving vacancies in the mid-tier units. Those mid-tier units then lower their rents to attract renters from lower down the scale. It’s a cascading effect that benefits everyone—except those who don’t want to build more housing.

This isn’t some new phenomenon. Filtering has always worked best when we have a glut of new housing. We didn’t see it as clearly in the past because supply couldn’t keep up with demand. And in the future, as construction inevitably slows down, we’ll likely see rents rising again, especially in high-growth areas.

But for those who still want to argue, consider this: In 22 of the nation’s 150 largest metros, Class C rents are up by at least 4% year-over-year. The one thing these markets have in common? A lack of new supply.

The bottom line is this: It’s not just about affordability. High-supply markets are seeing rents drop, while low-supply markets are experiencing the opposite. And yet, the critics keep shouting, "We don’t need more luxury apartments!"

Well, guess what? Yes, we do. Because when you build these "luxury" apartments in large numbers, you’re not just catering to the wealthy—you’re putting downward pressure on rents for everyone. And that’s something even the critics should be able to get behind.

Want to stay ahead of the curve?

Stay up to date with the latest trends, market insights, and opportunities in real estate. Visit PGR Group to learn more about how you can be a part of this evolving landscape. Connect with me on LinkedIn , Facebook , or Twitter to get real-time updates and insights. If you’re ready to dive deeper and receive exclusive information, subscribe for more or email me directly at Phillip.G.Richardson@gmail.com . Don’t miss out on the future of real estate.

Interested in investing? Invest in our Fund through ACARA - Apartment Capital and Realty Advisors, and be part of something big.

If you’re ready to dive deeper and receive exclusive information, subscribe for more or email me directly at Phillip.G.Richardson@gmail.com .

Also, explore opportunities with EXP Commercial and see how we’re changing the game in the commercial real estate sector.