According to proprietary data provided by analytics firm RealPage, the national average rent-to-income ratio in the multifamily asset class is 17 percent, suggesting more growth opportunity for investors.
Rent-to-income ratios are at a national average of 17 percent, indicating much room for rental growth across the U.S., according to proprietary data from RealPage. This statistic is based on RealPage’s transaction database, says Keith Dunkin, SVP, Asset Optimization at the property management software company. Keith Dunkin, RealPage “Most economists would say that you can go as far north as 25 percent or 30 percent and still be in pretty good shape,” he notes. “Obviously there are some pockets where that’s not the case.” There are geographies in which the data shows rent significantly outpacing wage growth. But on the whole, across millions of observations, RealPage found rent-to-income ratios to be about 17 percent, he says. And while gateway markets like New York, San Francisco, and Los Angeles continue to be closer to affordability crises, Dunkin is quick to point out that rent levels have been moving at or around the point of inflation for an extended period of time, and the notion that apartments are not affordable across the board is a misnomer. “There is some variability by asset class,” he says. “We did a renter segmentation analysis where we were able to understand, at a market level, what the makeup and the composition of the renter population is—which is impactful for investment decisions. But even at the most stretched group across these seven core segments, you are not materially accelerating up and around that 30 percent rent-to-income level in the household, because in a lot of instances there are groups of people living together.” RealPage’s software covers all food groups in the real estate sector, and Dunkin says that they have the ability to leverage lease-transaction-based information at a neighborhood or zip code level to give perspective on what’s happening with revenue performance, rent-roll growth, renewal conversion rates, lease-over-lease, rent trade-out, and rent-to-income ratios. These days, more and more investors are using analytics as a discipline and a way to enhance the value of an investment portfolio. Dunkin says that while information is powerful, unless it can be put into the context of one’s portfolio, it is less useful. “There’s been a push to not only look at the metric itself and movement in a given metric of performance, but also to put it in the context of what’s happening internally within a portfolio and how to take action with it,” he says, “and then, most importantly, what’s happening in real time relative to the market.” Dunkin mentions the oft-cited 80-20 rule of statistics, in which 80 percent of effects come from 20 percent of causes. “Data is there to determine the 20 percent that really matters,” he says. “And so we’re fortunate to have a team of data scientists that do in-depth statistical analyses on the information we have to determine the metrics that really move the needle.”
