We live in a record-setting real estate world right now. Almost 37% of people in the U.S. are renting their home, according to the U.S. Census Bureau, the highest rate since the era when the hottest things in home decor were avocado green and wood paneling (that’s the 1960s if you didn’t guess). We have record numbers of new rental apartments opening up across the country, and over 95% of them are full, according to the most recent occupancy data from Yardi Matrix. What are landlords doing to fill up the increasing number of rental units? Are renters who apply for a lease today better off or worse off than a few years ago?
Renters rejoice: approvals of rental applications are up
According to a recent analysis of resident screening data provided by RentGrow, a tenant screening service, which includes lease applications processed between 2014 and 2017, the percentage of applications that are approved nationally is increasing, from an 81.7% approval rate in 2014 to 83.2% in 2017.
Why? One theory is that the quality of tenants has increased. We know there has been a significant rise in the number of high-income renters in the last decade, as luxury rentals have become more commonplace. Secondly, landlords are more motivated than ever to approve more applications in order to fill up the hundreds of thousands of new apartments opening every year. Additionally, a closer look at the screening data also shows that the average credit score of applicants has improved over time, from 612 in 2014 to 628 in 2017, a fact that supports an upswing in approval rates as well.
The percentage point change from 2014 to 2017 may not seem very big, but in a larger context, for every million applications submitted, it results in 15,000 additional applications approved.
Gen-X-ers have the toughest time getting approved
Every generation has had its fair share of hurdles in dealing with the ups and downs of the housing market. Out of all age groups, Gen-X-ers have felt the brunt of the housing crisis during their prime years of homeownership, and many have been left with ugly scars on their credit history, including foreclosures, and large amounts of debt. Combine that with their student loan debt, of which they hold a 35% share, and you have the most indebted generation in the U.S. with the lowest approval rates on rental applications, 77.5%.
The highest acceptance rates (91.8%) are among Gen-Z applicants (aka Centennials or iGen), who are currently at or around college-age and are entering the rental market with a clean slate. Because of their limited credit history, many Centennials have co-signers, which also helps their chances of approval quite a bit.
Over 60% of rental applicants in 2017 are Millennials
Applicant profile data reinforces the claim that Millennials represent the majority of the U.S. renting population. Here’s how the generational makeup of the applicant pool, at the national level, has changed since 2014:
The graph shows how Generation Z is entering the rental market, registering the most rapid increase over 4 years, from 1.2% of applicants in 2014 to 9.2% of applicants in 2017. Meanwhile, the other generations are slowly exiting the rental pool.
The generational makeup can differ significantly when we look at the city level. Cincinnati, OH has the largest share of Gen-Z applicants, 14.7%, compared to the 9.2% national average. Seattle, WA has the largest percentage of Millennial rental applicants, 78.5% vs 60.3% the national average. Manhattan, NY and Scottdale, AZ have the largest share of Gen-X applicants, 21.7%, compared to the 14.4% at the national level. Detroit, MI has the largest share of Baby Boomers who apply for rent, 29.4%, more than double the national average of 13.4%. Jacksonville, FL has the biggest share of applicants from the Silent Generation, 9.3%, more than three times the national average of 2.7%.
Applications and approvals in high-end buildings are up
Many of the new apartments that have come on the market recently are Class A, high-end rentals, a distinct characteristic of the post-recession rental market. These are top-of-the-line rental buildings with amenity packages and services aiming to offer a complete “live-work-play” rental experience at above-average rental prices. Data shows that the trend has caught on.
In 2017, 23% of applications for rent were submitted in high-end buildings, up from 21% just 3 years prior. Applications in mid-level buildings (Class B) accounted for 47% of all applications in 2014, now they are 50% of applications. At the same time, applications in low-end buildings (Class C and D) are decreasing; they represented 32% of all applications in 2014 and are down to 27% in 2017.
Where do renters apply in 2017?
- 23% in Class A (high-end) rental buildings
- 50% in Class B (mid-level) rental buildings
- 27% in Class C and D (low-end) rental buildings
The highest approval rates are in high-end buildings (88.2%), followed by mid-level buildings (with an 83.2% approval rate); the lowest approval rates are in lower-end buildings (80%). Both tenant quality and availability of vacant units are likely factors. Overall, approvals have been increasing since 2014 in all classes of rental properties.
Best odds to get approved are in May and June
Screening data also shows that the highest approval rates are during the high rental season (May and June), while the lowest approval rates coincide with the slowest renting month of the year, February.
Most active apartment markets have the highest approval rates
Over 90% of applications to rent apartments in Seattle, Portland, San Diego, Washington, DC, Los Angeles and San Francisco get approved. The 6 cities are very active and high-priced rental markets with thousands of new apartments to fill every year, being in the top 20 cities in the country with most apartment units completed in the last 2 years. Other cities hungry for tenants are Denver, Plano, TX, Philadelphia, Chicago, Austin, Miami, and Nashville, all of which have been seeing high rent increases and large numbers of newly opened apartments.
Number one on the list, Seattle, WA is a popular city for Millennials, with the highest share of Gen-Y rent applicants of all cities analyzed. 93.7% of rental applications in Seattle end up in a lease. Being one of the hottest and most active rental markets in the post-recession years, Seattle is among the top cities in the country for both construction of new apartments and rent growth. San Francisco and Irving, TX, both in the top for highest approval rates, also have very high percentages of Millennial rental applicants, about 74.5% each. Second on the list of cities with highest application approval rates, with 91.1%, Portland, OR is also a Millennial city, with 71% of renter applicants from Generation Y, as well as one of the fastest growing rental markets in the U.S. in recent years.
Highest rejection rates are in cities with limited apartment supply
A quarter or more of people who apply for rent in Scottsdale, AZ, Detroit, MI, Arlington, TX, Garland, TX, and Henderson, NV are rejected. With some exceptions, the cities with the lowest approval rates are markets where the apartment supply is more limited. With a lesser number of apartments to fill, landlords can be pickier. For example, in the city of Detroit, where 27.4% of applications for rent are rejected, less than 500 new apartments have been built in 2015 and 2016 combined. Also worth noting is that the renting population in Detroit is older. It has the highest percentage of Baby-Boomer applicants, about 30%, and only 50% Millennials.
Manhattan, NY, undoubtedly the most competitive rental market in the U.S., has the 7th highest rejection rate in the country, 24.4%. New York’s main borough is in a league of its own as it has a very large and diverse rental population vying for a limited stock of apartments available.
Defaults and collections are most likely to stand between you and your next apartment
Why do applicants get rejected? It’s not how much you make, nor how high your credit score is. Even with a good enough credit score, an applicant may still be rejected. About 33% of applications are rejected because of accounts in default, collection, or charged-off, from minor to severe levels.
Approximately 20% of applications are rejected because of civil court lawsuits, judgments or liens. 15% of rejections have to do with negative or insufficient rental history. 12% of applications are denied due to the applicant’s criminal history.
Credit score and approval rate go hand in hand
Surprisingly, in only 8% of cases was a low credit score the main reason for rejection. Even though defaults, charge-offs, judgments and the like all contribute to the overall credit score, the bottom line is that landlords often look beyond the number that is the credit score. They look at the applicants’ track record of payments and debts incurred as indicators whether a person will be a good payer. However, aside from all other reasons, your chances of approval do increase proportionally with your credit score. For instance, only 48% of applicants with a credit score below 500 are approved, but 98% of applicants with scores above 750 are successful.
Income is just a piece of the puzzle
A negative or insufficient employment history or income were the main reason for rejection in only 7% of applications. In some cases, factors such as a proven record of timely payments weigh heavier than income, such that a higher income doesn’t guarantee that an application is approved.
The city data in the table below shows the average individual income of applicants that were rejected vs those that were accepted. Apparently, a $79,000/yr income doesn’t rent you an apartment in L.A., neither is $72,000/year enough to get you a lease in San Francisco. Look up your city in the table below:
|City and State||Avg. Income of Applicants Approved||Avg. Income of Applicants Rejected||% of Applications Approved||% of Applications Rejected|
|San Diego, CA||$64,979||$60,860||90.40%||9.60%|
|Los Angeles, CA||$99,127||$79,288||90.30%||9.70%|
|San Francisco, CA||$109,946||$72,226||90.00%||10.00%|
|Kansas city, MO||$40,440||$37,805||84.60%||15.40%|
|Fort Wayne, IN||$27,694||$24,193||83.50%||16.50%|
|Fort Worth, TX||$54,964||$48,616||83.20%||16.80%|
|Colorado Springs, CO||$40,800||$40,924||82.70%||17.30%|
|San Antonio, TX||$42,527||$34,072||80.90%||19.10%|
|Corpus Christi, TX||$28,356||$35,729||80.20%||19.80%|
|Oklahoma City, OK||$35,975||$34,327||80.20%||19.80%|
|Baton Rouge, LA||$43,121||$35,178||79.70%||20.30%|
|New Orleans, LA||$55,433||$38,132||79.60%||20.40%|
|Las Vegas, NV||$30,010||$29,381||77.70%||22.30%|
The cities where applicants who were approved have the highest income are: San Francisco and Los Angeles, CA; Seattle, WA; Philadelphia, PA; Washington, D.C.; Nashville, TN; Portland, OR; Durham, NC; San Diego, CA and Scottsdale, AZ.
On the other end of the spectrum, the applicants approved with the lowest average income are in: Memphis, TN; Fort Wayne, IN; Corpus Christi, TX; Mesa, AZ; Las Vegas, NV; Tucson, AZ; Albuquerque, NM; Phoenix, AZ; Indianapolis, IN and Jacksonville, FL.
Analysis compiled by RentCafe based on data from RentGrow, an online tenant screening system featuring comprehensive reports, reliable data and automated recommendations for property owners and managers. The lease applications analyzed were submitted between January 2014 and June 2017, in the largest 100 U.S. cities. Relevant income data was available for 60 U.S. cities only. Income amounts represent individual annual gross income.
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