Renters Opting to Renew as Market Tightens

Despite rising rents, tenants are choosing to renew leases in favor of seeking new housing, according to property management software provider and apartment market research group RealPage. 

The company reports that over 57% of market-rate renters with expiring leases chose to renew over the past 12 months, a 3.5% annual increase and higher than the pre-COVID retention rate. 

Those leases were signed at rates 10.7% higher than those they replaced, while new renters paid an average of 18.7% more than previous residents of the same units. 

However, the company notes that rents are growing much faster among the Class A and Class B segments, which cater to higher-earning tenants. Rents for Class A and Class B buildings grew 11%-12% over the last year, supported by increasing renter income. A household signing a market-rate lease this month reported an average household income over $75,000, 14% above the average in April of last year. 

Class C tenants experienced lower rent growth — 7.1% — and were more likely to remain in place, with 65% of Class C renters renewing leases in the last year compared to only 53.4% of Class A tenants.  

RealPage's Jay Parsons, vice president of the company and head of Economics & Industry Principals, writes: 

"Public narratives around affordability too often conflate two very different issues. The real crisis is a severe shortage of affordable housing for lower-income renters who’ve never been able to afford market rate, even prior to COVID. We need substantially more housing of all types, but especially affordable housing – which requires more public support and more government funding.

But in the market-rate apartment sector, there is no macro affordability crisis – not yet anyway. There’s ample demand for rentals at today’s price points because of rising incomes; and as a result, apartments are more full than ever, and renters are paying the rent."

Read the full analysis at RealPage.com.