In their recent third-quarter earnings calls, apartment REIT CEOs noted that as occupancies tighten and rents move up, something else encouraging is happening—the quality of residents is also improving.

For instance, Houston-based Camden Property Trust saw its average household income move up about 4.5 percent in its portfolio—rising from $62,000 to $65,000. The company’s rent-to-income ratio dropped from 18.5 percent to 18.1 percent. That improvement is striking, says Jay Harris, vice president of business services at Santa Ana, Calif.-based CoreLogic SafeRent, since the second quarter is usually when owners and managers see the best applicants come through their doors.

“The net-net result of that is that we end up with a more qualified resident as indicated by the household income and, really, a better ability to pay even in the face of raising rental rates,” said CEO Ric Campo in its third-quarter earnings conference call, transcribed by

Uneven Picture
David S. Santee, executive vice president of operations for Chicago-based REIT Equity Residential, said the company’s “target demographic appears to be healthy and resilient.” In the third quarter, its 17,000-plus new residents had an average household income of $86,000 and their individual credit scores improved as the company “had record numbers of automatic credit approvals.”

The picture wasn’t as clear across the board. CoreLogic SafeRent says the stated income for applicants has moved from $6,751 in 2010 to $6,815 in 2011, but that was only a 0.9 percent increase after posting a 1.8 percent from 2009 to 2010, along with increases of more than 6 percent over the two years preceding that. Class B apartments saw stated incomes move up 1.4 percent and Class Cs saw them jump 3 percent. For Bs, the income growth was smaller than in the previous years, but Cs have posted some negative numbers in past years.

CoreLogic SafeRent also reported that applications for individuals (instead of household) stated incomes on applications, the picture looks even worse. Stated income for Class A apartments dropped 0.3 percent after rising 1.2 percent and 8.2 percent in the years before. Individuals applying for Bs saw incomes move up 1.2 percent, which was the lowest gain of the last four years. Class C apartments saw individual incomes rise 2.6 percent after falling the year before.

Different Standards
Unfortunately, not everyone is enjoying an influx of renters with higher incomes. But that doesn’t mean more applicants are being turned away. “We see an increase in a proportion of applicants who qualify compared to a couple of years ago,” Harris says.

There’s more going on than just better residents coming in, though. “With the recent shifts in the economy and the housing market in particular, property management companies are fundamentally changing the way that they evaluate credit reports,” says Dacia Edmonson, director of marketing planning and Dayton, Ohio-based LexisNexis, which recently ramped up its resident screening practice.  

Harris agrees. “They [apartment managers] can qualify people they weren’t able to in the past,” he says. “It’s clear that a great share of applicants qualify today, more than they did a couple of years ago. We have new sources of data and operators appear to be keeping their criteria at lower levels than they did years before.”