Redfin Reports Only 39% of Renters Make Enough Money to Afford the Median-Priced Apartment

Rhea-AI Summary

Redfin's latest report reveals that only 39% of U.S. renters make enough to afford the median-priced apartment. The typical renter household earns $54,712 annually, 17.3% less than the $66,120 needed to afford a $1,653 monthly rent. This affordability gap has widened as rents increased 22.9% since May 2019, reaching near-record highs. The report also highlights significant regional disparities: in New York and Miami, renters earn roughly 40% less than needed for the median rent, while in Austin and other Sun Belt cities, renters' incomes surpass rental requirements. Despite a slight dip in recent rent growth, affordability remains a critical issue for many renters.

Redfin's analysis is based on data from the three months ending May 31, 2024. The report emphasizes the ongoing challenges for renters, who are not benefiting from wealth accumulation through property value increases like homeowners.

Positive

• Renter incomes in some cities such as Austin, Houston, and Phoenix exceed the required amounts for median rents.
• Sun Belt cities have seen rent declines, making housing more affordable.

Negative

• Only 39% of U.S. renters earn enough to afford the median rent of $1,653 per month.
• The median renter household earns 17.3% less than what's needed to afford typical U.S. apartments.
• Rents in major cities like New York and Miami remain highly unaffordable, with renters earning roughly 40% less than needed.
• Nationwide, the income required to afford a median-priced apartment has risen 22.9% since May 2019.

Insights

Financial Analyst

The latest report from Redfin highlights a significant gap between the income of the average renter and the income needed to afford a median-priced apartment across the U.S. This finding has several implications for retail investors, particularly those with interests in the real estate, rental and housing markets.

First, the disparity between renter income and necessary income for median rent suggests that rental affordability remains a critical issue. While Redfin notes that wage growth is outpacing rent growth, this gap is still substantial. Investors should consider the impact this may have on rental demand and potential rental income. Renters unable to afford current rent prices may either seek more affordable housing options, move to less expensive areas, or continue renting rather than purchasing homes, influencing the rental market dynamics.

Additionally, the regional differences highlighted in the report, with cities like New York and Miami showing particularly high gaps, suggest that market conditions vary significantly across the country. Investors may need to take a more localized approach when evaluating their real estate investments, focusing on regions where rental affordability is less strained and the demand for rental properties remains robust.

In the long term, the rising gap in rental affordability could prompt regulatory responses aimed at increasing affordable housing options or controlling rent prices, which could further impact rental market dynamics and investor returns.

Overall, the Redfin report underscores ongoing challenges in rental affordability that could influence real estate investment strategies and market conditions.

Market Research Analyst

The Redfin report offers insight into the broader economic trends affecting the rental and housing markets. The fact that only 39% of renters can afford the median-priced apartment highlights a significant demand-side pressure in the housing market. This may push more renters into the market for lower-cost housing or increase demand for subsidized housing solutions.

The report's data on regional disparities, where cities like New York and Miami see renters earning significantly less than needed for median-priced apartments, suggests that market strategies may need to be tailored to specific local conditions. In regions where rental affordability is particularly strained, there may be increased opportunities for investment in affordable housing developments or other housing solutions targeting lower-income individuals.

Furthermore, the slight decline in rents in some Sun Belt regions, such as Austin and Phoenix, indicates a cooling market in areas that saw significant population inflows during the pandemic. This could be an indicator of shifting demand patterns, which investors should monitor closely.

Long-term trends in wage growth outpacing rent growth are positive for renters but may present a more challenging environment for rental property owners and investors looking to maximize rental yields. Understanding these nuanced market dynamics will be important for making informed investment decisions.

The income renters need to afford the typical apartment is the highest since 2022 amid a rebound in asking rents, which are now just $47 shy of their record high

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —The typical U.S. renter household earns an estimated $54,712 per year, 17.3% less ($11,408 in dollar terms) than the $66,120 needed to afford monthly rent for the median-priced U.S. apartment ($1,653). That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Only 39% of renters make enough to afford the median-priced apartment.

The amount renters must earn to afford the median-priced apartment is at the highest level since October 2022. It’s up 0.8% year over year and up 22.9% from before the pandemic (May 2019), as that’s how much asking rents have risen. At $1,653, the median U.S. apartment asking rent in May was just $47 shy of its record high. Still, it’s worth noting that rent growth is essentially flat.

This is based on a Redfin analysis of median U.S. apartment asking rents as of the three months ending May 31, 2024, and estimated median incomes for renter households. We consider an apartment affordable if a renter spends no more than 30% of their income on rent.

“Rents are growing at a snail’s pace compared to the rapid increases we saw during the pandemic, and are unlikely to soar again anytime soon. As a result, wage growth should continue to outpace rent growth in the coming months, as it has been doing since 2022,” said Redfin Senior Economist Sheharyar Bokhari. “That will help narrow the affordability gap for renters, but for a lot of folks, the math still won’t check out. Many U.S. renters are and will remain burdened by the cost of having a roof over their head, and unlike homeowners, they’re not building wealth through rising property values.”

The income a renter needs to afford the typical apartment did drop last year, but is now rising again as rents rebound. It fell to as low as $63,920 in December 2023, when rents briefly dipped below $1,600, but that was still unaffordable for many renters.

Multifamily construction surged during the pandemic, which is what caused rents to fall, but rents are now being buoyed by resilient demand; many young renters are opting to stay put rather than confront an increasingly unaffordable homebuying market. Still, there’s still a backlog of new units that are hitting the market every month, which is putting a lid on how much prices can grow.

In New York and Miami, the Typical Renter Earns Roughly 40% Less Than They Need to Afford the Typical Apartment

In New York, the typical renter earns an estimated $67,358 per year. That’s 43.5% less than the $119,120 a renter needs to afford the median-priced apartment—the biggest gap among the 33 major metros Redfin analyzed. Next comes Miami (42.2% less), followed by Boston (38.7% less), Los Angeles (36.1% less) and Riverside, CA (30.8% less).

U.S. metro area	Income required to afford median-priced apartment	Estimated median renter household income	Median asking rent
New York, NY	$119,120	$67,358	$2,978
Miami, FL	$99,440	$57,471	$2,486
Boston, MA	$113,400	$69,493	$2,835
Los Angeles, CA	$112,440	$71,853	$2,811
Riverside, CA	$92,480	$64,016	$2,312

New York is perennially one of the most expensive rental markets, but affordability challenges have been intensifying; rents rose 9.2% from a year earlier in May—one of the biggest increases in the nation.

In Miami, rents fell 4.2% year over year, but affordability remains strained because costs soared so much during the pandemic moving frenzy.

The Typical Renter Earns Enough to Afford the Median-Priced Apartment in Just Five Metros Redfin Analyzed

In Austin, TX, the typical renter earns an estimated $72,808 per year. That’s 16.8% more than the $62,360 a renter needs to afford the median-priced apartment (a big jump from 2023, when the typical renter earned just 2.7% more). There are four other major metros Redfin analyzed where renters earn enough to afford the typical apartment: Houston (10.2% more), Phoenix (9.2% more), Washington, D.C. (3.2% more) and Dallas (0.9% more).

U.S. metro area	Income required to afford median-priced apartment	Estimated median renter household income	Median asking rent
Austin, TX	$62,360	$72,808	$1,559
Houston, TX	$51,000	$56,177	$1,275
Phoenix, AZ	$61,640	$67,302	$1,541
Washington, D.C.	$82,680	$85,336	$2,067
Dallas, TX	$61,160	$61,740	$1,529

Austin has seen one of the steepest dropoffs in rents in the U.S., helping to make apartments more affordable. The median apartment asking rent in the Texas capital fell 7.2% year over year in May—the third biggest decline among the metros Redfin analyzed. Rents also fell in Phoenix and Dallas, down 5.5% and 1.3%, respectively.

Rents are falling in the Sun Belt in part because the region has been building more apartments than other parts of the country (like the Midwest and Northeast) to meet demand brought on by the influx of people who moved in during the pandemic. But the pandemic housing boom is now in the rearview mirror, and property owners are facing vacancies, which is causing rents to cool.

Washington, D.C., which has a lot of high-income transient workers, is the most notable outlier in the table above. While the typical renter earns slightly more than they need to afford the median-priced apartment, the gap is shrinking as rents rise; the typical D.C. renter earns $2,656 more than they need to afford the median-priced apartment, compared with $6,487 more in 2023. Asking rents in Washington, D.C. rose 11.1% from a year earlier in May—the biggest jump among the metros Redfin analyzed.

To view the full report, including charts, methodology and more metro-level data please visit:
https://www.redfin.com/news/renter-incomes-affordability-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240624884667/en/

Redfin Journalist Services:

Kenneth Applewhaite

press@redfin.com

Source: Redfin

FAQ

What percentage of U.S. renters can afford the median-priced apartment according to Redfin's report?

Only 39% of U.S. renters can afford the median-priced apartment, as per Redfin's latest report.

How much annual income does a U.S. renter need to afford the median-priced apartment?

A U.S. renter needs an annual income of $66,120 to afford the median-priced apartment, which costs $1,653 per month.

How has rent affordability changed since May 2019?

Rent affordability has declined, with the income needed to afford the median-priced apartment rising 22.9% since May 2019.

In which cities do renters earn significantly less than needed for median rent?

In cities like New York and Miami, renters earn roughly 40% less than needed to afford the median-priced apartment.

Which cities have seen a decline in rents, making them more affordable?

Cities like Austin, Houston, and Phoenix have seen rent declines, making apartments more affordable.