March Market Report

by Jordan Brooks, ALN Apartment Data

Greater Fort Worth Affordability Factor

In this long upcycle since the end of the Great Recession, rents have enjoyed strong and continuous growth. How has this rent growth affected affordability in the Greater Fort Worth market? Households come in different sizes, and there are different floorplan types, but by using ALN market data paired with date from the US Census Bureau, it’s possible to get a general idea.

In comparing median household income to median effective rent and using the common benchmark of 30% of gross income toward rent, a big-picture view of affordability emerges. Only conventional properties with more than 50 units will be included.

Overall Effective Rent vs Household Income

According to the American Community Survey (ACS) released in 2018 by the US Census Bureau, median annual household income for the Dallas – Fort Worth metroplex in 2017 was about $63,800. Despite including data for the Dallas area as well, we’ll use an estimated value based on this amount for 2018 household income. This is because the ACS goes into detail that will be of use, and similar data specific to Fort Worth cover only the city proper of Fort Worth rather than the Greater Fort Worth metroplex.

The estimated monthly median household income for 2018 was approximately $5,500 as of the end of 2018. Using the 30% affordability threshold, monthly rent should ideally be below about $1,600. The median effective rent per unit for the Greater Fort Worth area was just over $1,000 per month to end 2018. This means monthly rent accounts for about 18.5% of gross household income at the median. That is below the national average of about 24%.

A Closer Look at Affordability

The overall rent-to-income numbers look very healthy, so let’s have a closer look by accounting for price class* and considering different income brackets. For the top price class, median effective rent closed last year at just over $1,400 per month. This also falls into the affordable category based on the 30% benchmark by coming in below $1,600.

According to the ACS, about 18% of households in the DFW metroplex earn between $20,000 and $39,999 annually. At the top end of that bracket, 30% of monthly income for rent comes to about $1,000. This is obviously well short of the median rent for Class A properties, and it’s also below the median rent for Class B properties—which is approximately $1,150.  It isn’t until we get to price class C that the median rent is below the affordability threshold, and barely so. Some of these households may qualify for rent subsidies as a result of the lower end of this bracket being around that threshold, but many in this group will not.

At the top end of the next income bracket, with households earning $59,999 annually, the picture gets better. Nearly 17% of households fall within this range, and 30% of monthly income, in this case, is about $1,500. That’s enough for any price class, though, with hardly any margin when it comes to the top end of the market.

About 25% of the households in DFW earn between $60,000 and $99,999 annually. This is the important group for multifamily because a good portion of higher income households are likely to purchase, and most lower-income households will likely not be in the resident pool for newer properties.  Class A properties in the Greater Fort Worth market might have already priced themselves out of the lower part of this income bracket as it is. At the top end, prospective residents should be less price sensitive in even the Class A properties.

Takeaways

In evaluating effective rent and household income, a few things become apparent. For households earning more than $20,000 annually, but less than $40,000, the market has become challenging. These households likely make too much to qualify for rent subsidies but don’t make enough to be able to comfortably afford Class A or B properties. Even Class C properties may be a stretch depending on the situation. This would seem to indicate 2019 will be a strong year for demand in the lower price tiers.

The metroplex has a healthy supply of households making above $60,000, and it’s these that will likely to continue driving demand in the upper price tiers. By national standards, Greater Fort Worth remains very affordable. But for close to 20% of households, that may no longer be the case.

*Price class (A, B, C, D) is calculated based on market percentile for rent per sq ft with A = top 12%, B = next 20%, C = next 38% and D = bottom 30%