The median renter income hits $75k

While rents increased rapidly through 2021 and into the first half of 2022, renter income growth has ensured that renters in market-rate apartments can still comfortably afford higher rents, according to a RealPage report released this month.

Between 2020 through the first half of 2022, the median rent for a new lease leaped upwards by 21.9% to $1,510, according to RealPage. Yet the median household income for those living in a market-rate apartment has reached $75,000, an increase of 15.4%, over the same period.

Renters are indeed having to pay a higher percentage of their income towards rent, but the rent-to-income ratio is still far below the 33% widely regarded as the threshold for “cost burdened.” Market-rate renters in 2019 were paying a comfortable average of 21.3% of their income on rent, which in 2022 has risen to an average of 23.2% – about where it was in 2011.

The number of market-rate renters is significant – even as rents have made drastic upward strides, the market-rate apartment sector grew by approximately 1 million new net households between the start of 2020 and the first half of 2022. RealPage has observed a “massive wave” of demand from mid- and upper-income renters in recent years.

If we look closely at the rent-to-income ratio, we see an interesting inverse relationship – the higher the rent of a given asset, the lower the percentage of income a typical renter in that asset is paying to live there.

Renters in Class A apartments (which tend to be newer, with more desirable amenities and locales, charging top-of-market rates) have more comfortable incomes, giving them more financial breathing room than renters of Class B apartments. Class B renters, in turn, generally have more financial breathing room than renters of Class C apartments (older properties with more maintenance needs and charging lower rents).

Our own data supports the RealPage analysis. In the chart above, we look at a representative Class A property using real-time income and rental data. This shows that income growth in one of CONTI’s target geographies has kept pace with rent growth. The current rent-to-income ratio of 19% is below both RealPage’s calculation of the national average, as well as our own (28%), and it’s well below the cost burden threshold of 33%. This low rent-to-income ratio gives us confidence in our ability to make proactive decisions about rents in order to maximize returns.