Impact of new housing construction on rental prices in Nashville

This year could be a record year for the number of new apartments opening nationwide, according to a new report from RentCafe.

Nashville is leading the country’s strong rental development boom, which has helped offset double-digit rental growth in 2022. However, the study projects the construction boom will end next year as the rush of new projects subsides.

RentCafe estimates that a total of 518,108 new housing units will open nationwide by the end of this year. The Nashville metropolitan area ranks 11th, with 12,192 units expected to be completed by the end of the year.

An estimated 6,643 units are concentrated in the city of Nashville, according to RentCafe, while thousands more units are scattered between Antioch, Spring Hill, Lebanon, Madison, Murfreesboro and Columbia.

That surge in housing projects, which began in 2020 and 2021 when prices were significantly lower and financing easier, is expected to be completed this year, after which new housing construction will slow from 2025 to 2027, industry analysts say.

“Although there will be a lot of housing completed in 2023 and 2024, there is certainly a cliff of new construction due to Fed rate hikes, construction costs and new supply,” said Andrew Steffens of development firm Wood Partners. “In every major city, there will be a lot of housing completed and built. But then it just stops.”

Relatively high interest rate increases in 2022 and 2023 slowed the start of new projects across the country, which will likely lead to a slowdown in development in the coming years.

Nevertheless, Wood Partners and many other developers in the Nashville market remain committed to the city’s long-term success – especially given the continued high employment and population growth here.

Doug Ressler, senior data analyst at RentCafe, said the impact of higher borrowing costs over the past year will vary by location, with regions with slower population growth seeing a more drastic decline in home construction.

“In places like Texas, for example, housing demand remains robust due to factors such as corporate migration and high home prices,” Ressler said in the report. “On the other hand, some markets are seeing a decline in housing starts due to the economic environment.”

In no other state is development as strong as in Texas, where four metropolitan areas are in the top 20. A total of 82,000 housing units will open this year in the Dallas, Austin, Houston and San Antonio metropolitan areas.

The cities in the state of Tennessee, especially Nashville, also continue to be centers of high growth.

Overall, the RentCafe study estimates that Nashville’s housing construction could total 44,556 new units between 2024 and 2028, surpassing the 2019-2023 period when 36,454 new units were built, suggesting there is continued development interest in the area.

Will this cause rent prices in Nashville to rise?

According to RentCafe, the current average rent for an apartment in Nashville is an estimated $1,755. According to Rent.com and Apartments.com, the average rent for a two-bedroom apartment is an estimated $1,968 to $2,060.

Prices have dropped slightly since this time last year, largely due to the number of new apartment buildings that have sprung up in the area and increased overall supply. Joel Sanders, founder of Apartment Insiders, expects prices to drop again in the fall and winter.

However, Sanders said the market will eventually swing back in landlords’ favor once the recent supply of new apartments is filled by renters. He estimated that 2027 will be the year to expect rent prices to rise in Nashville.

“Three years from now, we could potentially see significant rent increases,” Sanders said. “The trajectory has changed as far as new deliveries are concerned. They are slowing down. Do I expect Nashville to ever stop? I don’t think so.”

Some developers are ready to continue investing in the Nashville area, including Wood Partners, one of the region’s most active homebuilders.

The development company has already opened apartment complexes in The Nations, Downtown Nashville, Smyrna, Antioch, East Nashville and Metrocenter. Apartment complexes the company is currently building include Alta City Side, Alta Rochelle at Edgehilll and Alta Lofts on the Levee at Metrocenter.

As a larger developer, says Steffens, Wood Partners can continue to consider development contracts even in generally weaker market phases. The long-term prospects are particularly positive in Nashville.

“The outlook is great,” Steffens said. “Nashville is a very successful market for Wood Partners. We’ve done nine deals in less than six years, so we’re very optimistic about Nashville.”

Will this cause rent prices in Nashville to rise?

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