Apartment’s Share of Wallet
Despite quickly rebounding rents, Apartments taking only modest share of wallet.
The recovery in apartment demand is skewing toward higher income households, helping to hold down rent-to-income ratios despite quickly rising rents. Across Class A assets owned and operated by GID, rent-to-income ratios were about 21% in the second quarter,1 virtually unmoved from pre-Covid levels. GID’s Class B rent-to-income ratios average about 200 bps higher than Class A assets in the same market 2 and are well below the traditional mortgage heuristic which limits housing costs to 30% of income.
This continues a trend that has been evident over the past cycle – the growth in renter demand has skewed toward higher income households who can better afford the rent. In fact, nearly 7 million new renter households earning at least 70K were added to the renter pool from 2010-2019, including 4.7 million earning six figures or more.3
Given the rapid rise in higher income households opting to rent, GID believes the affordability evident across its resident base is also true across the apartment market more broadly and suggests Class A and B renters can tolerate current and future rent increases.
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