Market-Rate Apartment Residents Not Worried About Making Rent

Affordability for market-rate apartments is not a major concern for owners as income wage growth is moving along with rent increases, according to the 2022 Market-Rate Apartment Affordability Report issued Monday by RealPage at its RealWorld Conference in Las Vegas.

The report showed that market-rate residents nationwide are spending 23.2% of their income, well below the oft-quoted 33% affordability ceiling. The 23.2% measure is modestly higher than pre-pandemic norms.

Additionally, according to RealPage’s chief economist and head of industry principals Jay Parsons,  “It won’t be a concern so long as wages continue growing. There’s been massive, well-qualified demand for apartments even as rents have increased, and that’s why vacancy remains low and rent collections high.”

Continued Inflation Would be Problematic

Rents, like nearly all expenses in today’s inflationary market, are growing at the fastest pace in more than 40 years, which has put a spotlight on affordability, Parsons said.

The median household income for market-rate apartment renters so far in 2022 soared to an all-time high of $75,000, up 15.4% since 2020. 

Over the same timeframe, the median monthly rent on a new lease jumped 21.9% to $1,510, nationally. 

“That reversed a pattern of eight straight years of rent-to-income ratios inching downward,” Parsons said. 

Carl Whitaker, director of research and analysis for RealPage, added in prepared remarks, “Apartment renters are spending slightly more on rent than they did prior to the pandemic, but many could still get stretched as other expenses, particularly food and gas, climb at much faster rates. We’re closely watching rent collection trends, and so far, market-rate renters continue to pay rent at normal levels.”

Rent Being Paid on Time

According to the report, the percentage of billed rent collected has consistently averaged between 95% to 96% since the pandemic hit in March 2020. 

“Previously, collections trended slightly higher at 96% to 97%,” according to its release. “High collection rates in the market-rate apartment sector are one reason why rental delinquency and eviction filings never spiked nearly as much as some had feared.”

The RealPage Market-Rate Apartment Affordability Report reflects the first study to capture incomes and rents for the same households on a large scale, with nearly 7 million individual leases included. 

Past studies have mixed-matched different datasets on rents and wages. That creates a misleading view on affordability, in part because most publicly available rent data skews toward pricier, professionally managed rentals, while publicly available income data covers a much broader population.

Lack of Housing Stock a Bigger Issue

Parsons said that “clearly,” market-rate affordability is not the problem. 

“The real problem is the severe shortage of true affordable housing for the millions of households who cannot afford to rent or buy,” he said. “That is a separate challenge that is too often conflated with affordability among existing market-rate renters. We need a lot more housing across the country, especially affordable housing.”

RealPage’s study was limited to renters in market-rate, professionally managed apartments signing a new lease from within RealPage software, where property managers record household income from lease applications along with the signed monthly rental rates. RealPage calculated the rent-to-income ratio for each lease, then took the median ratio.