Rent Payments Remain Consistent Even as Rents Surge

Inflation is driving up the cost of almost everything, and rent is no exception. Rent growth, like broader inflation, is at 40-year highs. That leads to an important question: Are renters keeping up?

Perhaps surprisingly, the answer is – so far – yes.

Across the nation, renters in market-rate apartments paid 95.6% of rent due in May 2022. That was up 0.2 percentage points year-over-year. Rent collections have consistently hovered around 95% to 96% over the last two years. This is considered healthy, but still slightly below the pre-COVID norm of 96% to 97%.

(Note that RealPage methodology differs from the National Multifamily Housing Council Rent Payment Tracker, which measured only the percent of renters making a payment by certain dates each month and had other limitations due to the number of participating data providers. However, RealPage – one of the data providers to NMHC –goes a step further by looking at ledgers to measure the actual collection rate among rent due for the millions of units running on the RealPage property management platform.)

Of course, there’s still risk. Households of all types – both renters and homeowners – are paying more for food, gas and other essentials. The hot real estate market has also driven up property taxes and insurance across the country, which impacts homeowners directly and renters indirectly (via increased rent to offset rising costs). How long can renters continue to pay rent?

The key is renter incomes. Wage growth has been most significant in recent years among younger workers who are more likely to live in apartments. RealPage tracks incomes among households signing new leases each month, and there’s good news: Incomes in this group are keeping pace with rents. Indexed to January 2020, renter household incomes are up 21.4% through May 2022 compared to a 21.7% increase in asking rents.

That data measures only renters moving into a new apartment, not those renewing leases. But there’s good news there, too. Asking rents tend to grossly overstate what renters actually pay. Looking at the average in-place rent (what a typical renter pays each month for their lease), rents have increased 11.8% since January 2020. That’s still substantial, of course, but it’s half of headline asking rent growth.

Furthermore, renters are renewing leases at the highest rate on record – with roughly 57% of expiring leases getting renewed over the last year. Renewal leases are typically offered only to renters in good standing who pay rent. While high retention reflects one challenge (low availability of all housing types means a lack of options to move), it does reflect one positive: Renters are paying the rent.

Those patterns are holding up across most of the country with a few notable exceptions. Rent collection numbers remain lower in New York, as is consistent with recent years, at just 91.4% in May. New York trends differ radically from the rest of the country. Rents there plummeted as much as 15% during the pandemic, then jumped back up more than 20%.

By contrast, rent payments topped 96% across most of the Sun Belt, where rents have grown the most –but remain substantially cheaper than large coastal cities.

It’s important to note that while the vast majority of renters continue to pay rent on time, exceptions remain – as was the case prior to COVID. That’s why it’s critical to support expanded public funding to build and maintain millions of units of dedicated affordable housing units. And it’s equally important to push back against restrictive zoning and other NIMBY policies that limit rental housing development at the local level.

Continued wage growth remains the big question going forward. Rents tend to be tied to wages. As rents increase, we’re likely to see more roommate situations to share the increased cost burden. That would be a shift from the trend of decoupling roommates over the last two years. But one big driver in decoupling – the need for more space to work from home – remains intact, and that could buffer the magnitude of the shift.

RealPage will be releasing a first-of-its-kind, detailed study on apartment affordability on July 18. The study will reveal actual rent-to-income ratios over time through 2022 and break down the results by individual metro and by asset class. The study will also explore leasing demographic trends based on examining millions of individual leases, including renter ages, roommates and much more.