Rental Housing Economist (Apartments, SFR), Speaker and Author
Are we pointing fingers in the wrong direction on the topic of rental affordability? This data might suggest so. Renters living in apartments and single-family rental homes owned by REITs and other institutions tend to spend a much lower share of income toward rent compared to most U.S. renters -- further illustrating the bifurcation of rental affordability. The Census shows half of American renter households are rent burdened (spending >30% of income toward rent), while the typical rent-to-income ratio nationally is 31% -- where it's been hovering for the last 10+ years. Compare that to REITs, who reported rent-to-income ratios (among new lease signers) ranging between 18-23%. Those numbers have changed relatively little in recent years, even when rents surged in 2021-22, thanks to surging incomes among new renter households, too. (Note: Some large REITs have not disclosed their ratios this year and therefore were excluded from the chart.) Invitation Homes -- who reports average renter household incomes of $158,000 -- reported the lowest rent-to-income ratio of 18%. Many apartment REITs, too, show renter household incomes in the six-figures, too. Additionally, RealPage -- which reports on a broader set of U.S. renters living in professionally managed, market-rate apartments -- shows a median rent-to-income ratio of 22%, and trending downward after peaking near 24% in late 2021. RealPage shows incomes among new lease signers (which includes dual-income roommates) right around $100k. By comparison, analysis of Census data shows renter incomes for the overall population well below $60k. Why the big discrepancy? Well, for one, the professionally managed market caters to mid- and higher-income renters. Over the last decade, three-fourths of all NEW U.S. renter households have had incomes topping $75k (according to Harvard analysis of Census data), and this is the demographic served by most REITs, "private equity" and other institutional capital Additionally, there are a couple key methodology differences. Census includes utilities, which I'd argue paints a misleading picture of true rent. And housing providers can only track income for new lease signers. Regardless, there's obviously a very real affordability crisis among lower-income renter households -- for whom there's a severe deficit of supply. Few of these households live in professionally managed, market-rate apartments or SFR -- now or prior to COVID, either. These renters are far more likely to be rent burdened and have far fewer options for places to live. They're also more likely to double up with other households to share the cost of rent and utilities. Bottom line: We need a lot more housing, especially for lower-income households. We need to keep the spotlight there. Misdirected angst toward higher-income renters is a disservice to low-income renters in far greater need. #housing #affordability #apartments #SFR
Hey Jay, you hit the nail on the head! It's like we're looking at two different rental worlds: one for higher incomes and another struggling with affordability. Maybe it's time we rethink how zoning laws and incentives can make affordable housing more attractive to developers? What do you think about modular homes or tiny houses as part of the solution?
Our data shows that many higher earners rent low expense rentals, using up affordable housing; many high earners pay more than they can afford (by choice) so are cost burdened; and many lower income earners rent more expensive apartments and are therefore cost burdened..
Anton Mattli
5mo
Excellent observations, Jay Parsons! Fannie, Freddie and HUD need to get back to their roots and strongly support buyers and owners of properties catering to below $75k income households: individuals, families, smaller PE firms/REITS and, yes, syndicators, the segment generally referred to as “Middle Market Multifamily”. The agencies love large deal sponsors and Class A properties but make it increasingly harder for smaller and mid-sized deal sponsors, particularly when it comes to 1970s and older properties where a significant portion of sub-$75k households live.
Zack Simpson
5mo
REIT's & other institutions don't just "cater to" higher income renters - they make sure you don't qualify to rent from them at all unless you are one, typically. Income requirements of institutional leases coupled with having the resources to build / own at scale in the highest priced markets means they can afford to be picky in order to keep this ratio down. 'Mom & Pop' can't afford to keep a place vacant for 2-3 months to wait for the perfect applicant so of course their rent-to-income ratio will be higher.
Hugh Frater
5mo
Love it as always Jay. And it points to an obvious problem at least in my mind. There do not seem to be incentives for cost control in existing subsidized housing programs and even if the housing authority or the developer both wanted to economize and make the subsidy dollars more productive there are local zoning and permitting requirements standing in their way. Forward thinking zoning reform can fix this but how do you make this happen in jurisdictions in need of housing that are strangely hostile to development and for-profit developers especially? This is misguided. I have a trick question for you. When was the last time you bought a phone, or a car, or an appliance from a not for profit company? Never. This is one of the most important policy challenges of our time.
Trung Bui
5mo
Selection bias? Institutional managed property may just impose more stringent requirements on income and credit history than mom-and-pop landlords can afford to?
Spot on Jay! More targeted solutions to address affordability for households at the lower end of the wage scale will have much bigger impacts than "one size fits all' approaches.
Paul Tsakiris
5mo
Chicago can create THOUSANDS of new units in a very short time by simply legalizing attic and garden apartments. The average landlord can create a garden or attic unit for under $100,000. By comparison, government projects are coming in at $700k/unit which is SIMPLY OUTRAGEOUS. The City should allow landlords to self certify through licensed professionals as the government simply does not have the capacity to handle all the inspections, bureaucracy, etc. Other ideas include allow affordable units to not count towards FAR and make any additional affordable units not count towards property tax.
Evan Howard
5mo
Great context for this storyline
Sales Leadership | Strategic Planning | Revenue Growth | Sales Process Improvement | Servant Leader
5moJay, just wanted to say thank you for the posts. So informative and valuable. I always tell my team to study, read and follow industry experts to grow and expand their knowledge base. You are someone I always recommend my team and my customers to follow. LinkedIn world, if you did notice the same last name, I wanted to say for the record Jay and I are not related! 😀