Pace of Income Growth Faster for Renters than Homeowners
While significant income differences remain between owner and renter households, growth in income is the fastest among apartment renters. This bodes well for short-term multifamily operating fundamentals.
Renter Income Growth Compared to Owners
Despite a rebound over the past few years, the rate of U.S. homeownership remains well below its pre-recession peak. In the years leading up to the housing crisis, the homeownership rate rose to 69.4%. Today, it stands at 64.3%, just 130 basis points (bps) above the cyclical-low set in 2016.
The decrease in owner-occupied households has pushed up demand levels for rental housing. Furthermore, Millennial lifestyle preferences and the growing ease of ‘aging in place’ for seniors have been a boon for the multifamily sector.
Market barriers preventing young families from transitioning into ownership have played a large role in the rise of renting.
Chief among these limiting factors has been household income. On average, renter households earned dramatically less than their owner counterparts, as shown below¹.
Through the end of 2017, renter households earned an average of $53,350 annually. This is just 53% of the average set by owner households.
Renter Household Income Growing the Fastest
Despite owner households having higher average earnings, the pace of income growth has been faster for renters. This is a likely effect of robust job creation and economic outperformance in urban areas where rates of homeownership are low.
Between 2015 and 2017, average household income for renters grew 7% across all property types. This compares favorably to the 5.9% growth for owner households, as shown below.
When looking at renter households by property type, average rent levels help to sort along the lines of household income levels.
Among rental properties, as discussed in our previous research, single-family rentals (SFRs) and large apartment properties commanded the highest average rents. Households renting in these property types both earned about $60,000 annually, as shown below.
Households in the more affordable, small asset multifamily earned around $50,000 annually, or about 20% lower than those living in SFRs and large asset multifamily.
The above trends support strong operating fundamentals for multifamily owners and operators over the short- to medium-term. Long-term, the degree to which income growth acceleration for renters compared to owners will benefit the multifamily sector depends if these high-earning renters remain in rental housing.
1 All data is sourced from the American Community Survey (ACS), unless otherwise stated. ACS statistics are sample-based estimates of the compositional profile of the total population in the given year of data collection, and include a margin of error.