The Rent Burden Has Eased But Not for Everyone

The year 2022 was a tough one for renters. The rent-to-income, or RTI, ratio peaked, driven by high multifamily rent increases that were chasing growing property prices and falling cap rates.

Last year was an improvement, at least in theory, according to Moody’s Analytics CRE. A combination of decelerating rent increases — negative growth, even — and increasing real incomes have meant that RTI have been declining.

But it hasn’t done much to change the fortunes of most households. “Still, metros previously identified as ‘rent burdened’ remained the same for this edition of the report, even as 85% of all metros experienced RTI decline relative to one year prior,” Moody’s wrote.

Moody’s had done the analysis for median households. There’s always a danger — which they recognized — with a view of median or mean results. Distributions are necessary to see how all people are being affected, and the differences here may seem surprising at first.

The Wall Street Journal had an interesting take in early February. The wealthiest renters saw falling rents. Quoting data from Yardi, they wrote, “Asking rents at properties populated by the highest-earning renters fell by 1% in December,” and that the figure didn’t include additional concessions, like periods of free rent, included in about a third of all rental listings according to Zillow. But others didn’t.

As GlobeSt.com reported at the time, construction costs had raced upward, ultimately adding more than 40% of final delivered costs over pre-pandemic times. Property valuations jumped. To make new deals pencil, units in an apartment building had to promise significant future rent growth. Many developers focused on up-scale units as a result.

Moody’s noted that the share of B/C multifamily units of the entire market dropped from two-thirds in the early 2000s to less than half by last year.

That meant more growth in luxury units than moderate- to lower-income apartments in much of the heavy construction trends that led to the record inventory delivery levels of 2023 and 2024. The overabundance of higher-end units would lead to a concentration of supply for a limited part of the market, so prices would fall more there. But, as Moody’s pointed out, mortgage rates and house prices have increased significantly, meaning that home ownership remains out of reach, even for many households with higher incomes.

Also, Moody’s noted, “Moderate- and low-income households enjoyed an above-average boost to incomes, particularly in 2022. However, their rent burden improved little. Marginal dollars earned does not appear to be enough to offset increases in rents, even in the more affordable segment of the multifamily market.”

The problem goes back to the Global Financial Crisis, which set off a housing shortage that grew over a decade. Many developers got out of the business and liquidity was hard to come by. Construction never caught up, leaving a major deficit.