The U.S. has more fancy apartments than it is able to fill

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Subscribe to enjoy similar stories. Think 15% vacancy rates are only a problem for owners of office towers? America has a serious housing shortage, but not for the type of apartments that real-estate investors have been building in record numbers. The national vacancy rate for multifamily apartments reached 8% in the last quarter of 2024—higher than it was before the pandemic.

Rising numbers of empty apartments seems odd considering the U.S. housing market is undersupplied by anywhere from 1.5 million to seven million units, depending on estimates. Part of the problem is a herd mentality that saw real-estate developers pile into the same cities to build the same kinds of properties.

Investors focused on constructing four-star and five-star units that command average monthly rents of $2,139. There were sound financial reasons for this strategy: Rising construction and land costs mean developers need high rents to deliver acceptable returns. But the result is a glut of upmarket apartments that are beyond the budgets of many tenants.

The vacancy rate for four-star and five-star units in the U.S. has hit 11.4% according to data from CoStar—double the rate of more affordable properties. Sunbelt cities have a bigger oversupply of high-end apartments than coastal markets.

Vacancy rates in Austin, Texas, have reached 15%, for example. Landlords need to offer generous concessions to persuade new tenants to move in, such as two or three months of free rent on a one-year lease. These sweeteners don’t show up as declines in headline rents, but they represent effective cuts of up to 25%.