Landlords Can't Rent their Apartments. Vacancy Rates are Surging.

Landlords Can't Rent their Apartments. Vacancy Rates are Surging.

Lost in the discussion of the 2023 Housing Market is what's going with rentals. In particular: vacant rentals. The tides have definitively turned south in the rental market and we are now seeing a big pile-up of vacant units sitting on the market with no renters. The result is that Landlords are being forced to cut the rent, especially in certain cities.

Declining Rental Market = Declining Home Prices

The first thing to understand about the rental market is its relevance to the Housing Market and Home Prices overall. If rental vacancy rates increase, and rents go down, that will eventually translate into lower home prices. Through two main mechanisms:

1) Real Estate Investors won't be willing to pay as much for houses and apartments if their rental cash flow potential is lower. Thereby pushing down prices.

2) Declining rents will incentive more would-be first time homebuyers to stay as renters. Depriving the Housing Market of buyer demand from a structural standpoint. And requiring home prices (and mortgage rates) to go down further to entice the buyers back into the market.

Phoenix, Las Vegas, and Jacksonville have "Crashing" Rental Markets

Phoenix, Las Vegas, and Jacksonville are three big sun belt metros which have seen their local rental markets go bad in recent months.

Phoenix is a rough one in particular. The apartment vacancy rate across the metro has skyrocketed from a low of 3.2% in late 2021 up to 7.2% in March 2023 according to new data from Apartmentlist.

The apartment vacancy rate in Phoenix is now 7.2%, the highest level in at least 6 years (Source:

This 7.2% vacancy rate is the highest level in Apartmentlist's data set that goes back six years. And it suggests that we could continue to see rental rates decline in Phoenix as 2023 progresses. The typical monthly rent in Phoenix according to Apartmentlist has already declined from a high of $1,619/month to $1,577 (-2.5%).

Phoenix's rental market is declining.
Higher vacancy rates are now causing rent to go down in Phoenix (Source:

Of course - rents in Phoenix are still much higher than they were pre-pandemic. And more work needs to be done to bring these rents down to a level that local renters in Phoenix can afford. But the recent declines in rent combined with increasing vacancy rates is a good start and suggests that landlords in Phoenix are going to have a tough time in 2023 and 2024.

Las Vegas is another market with similar issues. The Rental Vacancy Rate in Vegas has more than tripled from its pandemic low of 2.5% all the way up to 8.3% today. Once again - the highest level on record in Apartmentlist's data set.

Las Vegas' rental market is declining.
Las Vegas is dealing with a combination of higher vacancy rates and lower rents. (Source:

And like Phoenix, rents are also now declining in Vegas. From a high of $1,576/month down to $1,497 (-5.0%). These rents have actually ticked up slightly in recent months for seasonal reasons. However, I expect them to continue their downward trajectory as 2023 advances due to elevated vacancy rates.

But it's not just the Southwest that is seeing a softening apartment market. This is also happening in Florida. And in particular: Jacksonville. Where the vacancy rate has doubled to 6.7%, roughly back to the levels it was at before the pandemic.

Jacksonville's rental market is in decline.

Meanwhile, rental rates have been on a consistent decline over the last six months, registering a 3% drop from peak. Once again - not earth shattering on the surface. But a positive movement for renters, and a big problem for investors in Jacksonville, who are now facing a nasty combination of declining cap rates and increasing interest rates.

Investors own 30% of the Homes in many of these Cities

What's scary is how many homes real estate investors own in many of the cities where the rental market is declining. According to data from Redfin, Investors purchased 28% of the homes sold in Phoenix in 2022. And in certain ZIP Codes they purchased nearly 50% of the homes.

Real Estate Investors purchased nearly 30% of the homes in Phoenix in 2023.
Investors purchased nearly 50% of the homes in some ZIP Codes in Phoenix (Source: Redfin)

So the next logical question is: what happens to the housing market in these cities and ZIP codes if the rental market continues to decline?

Short answer: it's not going to be pretty. At some point many of these investors will be forced to sell because their cost of debt will be exceed their return from the rental operations.

Now to this point most investors haven't sold. They're holding on. Content with buying less and hoping for an improvement in the rental market in the future. But that improvement is unlikely to come given the boatload of new apartment units that are currently under construction.

Over 1 Million Apartments in the Construction Backlog

There is quite simply a staggering number of apartment units under construction in America right now. This "backlog", according to the US Census Bureau, measures over 1.1 Million including units both actively under construction and permitted waiting to be built.

Apartment developers have over 1 Million units in the construction backlog.
Apartment Construction Backlog hits over 1.1 Million in early 2023 (Source: US Census Bureau)

That's an astounding figure. It's 60% higher than the levels before the pandemic. It's more than double the levels in 2007 at the peak of the previous Housing Bubble. The only other time we had even close to so many apartments under construction was in the early 1970s.

These units are going to get delivered throughout 2023 and 2024, in a market where vacancy rates are already surging. Into a market where white-collar layoffs are running rampant and a broader recession looms in the background. Into a market where evictions in many cities have already surpassed pre-pandemic levels.

I mean - what do people think is going to happen here? It's pretty obvious. The rental market in America, both for apartments and rental houses, is going to get slammed. Investors who are trying to "buy the dip" in early 2023 on the basis of getting cash flow from a rental are going to be in a for a rude awakening. If you're someone planning on doing that, be prepared to float the property operating costs while you wait four months to find a tenant. And then be prepared to cut the rent in 2024 to retain that tenant.

If you're an investor: probably better to buy a 4.5% 1-Year Treasury and see how the rental market shakes out over the next year then get caught overpaying for a house that you can't rent (not financial advice, to be clear. Just my opinion.)

Where are Vacancy Rates surging the Most?

What's interesting about the current trends in the US Rental Market is that there's no specific geographic concentration to surging vacancy rates. Most of America is getting hit by them.

In particular - Louisiana. The Vacancy Rates in both New Orleans and Baton Rouge have more than doubled over the last year. Meanwhile, there is also major softness appearing in the Carolinas, as Wilmington, Columbia, Winston-Salem, and Raleigh all cracking the Top 25 Vacancy Surger list.

Landlords are not happy that apartment vacancy rates are surging.
The Top 25 Markets with biggest increase in Vacancy Rates (Source:

There's a broader southeast theme appearing as well, with Arkansas, Alabama, Oklahoma, Tennessee, and Florida registering on the list. Texas also pops up twice with Austin and San Antonio.

And then there's a Rust Belt presence with landlords in Sioux Falls, Lansing, and Rochester dealing with more vacancies.

Overall - the widespread geographic trend in increasing vacancies suggests to me that there's something structural occurring in the US Rental Market right now. Perhaps the sky-high rent increases that occurred in 2021 and early 2022 caused households to consolidate. More people got roommates. More people moved in with parents. Which lowered the demand for rentals.

How long that household consolidation lasts will depend heavily on economic factors. Consumers seem to have improved sentiment to start 2023. Will that sentiment last? If so, maybe there's an uptick in demand for rentals in the second half of the year and vacancy rates stop increasing.

However, the weight of the most rapid Fed rate hike regime in 40 years, combined with a banking crisis, combined with widespread white collar layoffs, suggest to me that consumer sentiment won't improve by much going forward. And that demand in the rental market will stay weak, just as all those new units come online in 2023 and 2024.

Buy v Rent Calculator

If you want to learn more about how the rental market impacts the broader Housing Market, I would suggest checking out the Buy v Rent Calculator Metric on Reventure App.

This metric compares the cost of buying a house to the cost of renting an apartment in the largest 500 metro areas in America.

Data comparing the cost to buy a house v renting an apartment.
Check out the Buy v Rent Calculator on Reventure App (Source: Zillow / US Census Bureau)

(Select "Buy v Rent Calculator" from the Data Dropdown under "Real Estate".)

The idea behind this metric is simple: if the cost to buy (inclusive of mortgage interest, taxes, and insurance) greatly exceeds the cost to rent, then it's likely a bad time to buy in that housing market. Especially if the difference between the two has grown wider in recent years.

I mean - check out what's going on in Texas right now. In markets like Houston, San Antonio, Dallas, and Austin, it's anywhere from 30% to 90% more expensive to buy than rent.

What's troubling is that it wasn't always this way. In Houston, for instance, it was usually historically cheaper to buy by about 15%. Now it's over 30% more expensive to buy.

This marks a huge shift in the fundamental dynamics of Houston's housing market and suggests that buyer demand will continue to fall off in 2023 and 2024 as there simply isn't much of a financial incentive for first-time homebuyers. You can blame near record high home prices to go along with 6.5% mortgage rates for this huge deterioration in buying affordability in Texas. To go along with very high property taxes.

Let Me Know in the Comments...

How does the Buy v Rent Calculator look in your market? Use Reventure App to find out. Also make sure to access the Graphs Page to see the historical data.

Once again - select Buy v Rent Calculator from the data drop down.

Lastly - I know what some of you real estate investors are thinking. Would it be smart to buy a rental in market where the cost to buy is way more than the cost to rent (like say, Austin or Seattle)? The idea there is that since so many first-time buyers are locked out of the buying market, they'll be forced to rent and that theoretically could push up rental rates in the long-term.

The problem with this logic is that high Buy v Cost Ratio Markets also tend to have very low cap rates. Meaning investors will receive a low return day one (the Cap Rate in Seattle is a measly 3.2% right now) and would be banking on future rent growth and appreciation to justify the investment.

I'm personally not a big fan of that strategy in today's climate. If it were me, I'd rather buy in a market with a high cap rate (say, Little Rock, AR). And accept that I might have some more tenant vacancies along the way as the renters there are still incentive to vacate and buy.

Let me all know what you thought of this post and the Reventure App rent data.