CoStar Insights

CoStar Portfolio Strategist Examines the Growing Importance School Ratings Will Play in the Apartment Search

by Shara Dahl | Sep 13, 2017

Over the next five years, the population of those aged 20 to 29 will decrease by about one million, while those aged 30 to 44 will increase by about 3.5 million. For investors looking to target apartment submarkets that are attractive to young adult households aging into their peak earning years and highest family creation rates, school quality may be a bellwether for more resilient renter demand.

So explains CoStar Portfolio Strategy Consultant Justin Tochtermann in a recent client update, where he examines the growing importance of school ratings when it comes to renter decisions.

 “Broadly speaking, strong school scores are indicative of a more affluent population able to achieve homeownership,” explains Tochertmann.  “However, apartment investors should also take note of the superior household growth found in submarkets with good school ratings.”  He notes that stronger growth among renter households translates across all submarkets.  In submarkets with a school rating greater than 7 from GreatSchools, which comprises ratings using test scores, student growth, and college readiness, this would indicate that growth in these submarkets is due to their desirability to both renters and homeowners.

“Interestingly enough, a strong school score does not mean that the residents living there are inordinately more likely to have children,” Tochertmann adds.  “Although higher-scoring school districts achieve marginally higher rates of households with children, whether or not a household has a child is not the primary driver of residence in such districts: The ability to afford the cost of living in these more attractive areas is.”

Even so, he adds, submarkets with above-average school scores do tend to have more households with children, particularly those households that can afford to live wherever they prefer.

“All told, submarkets with higher-than-average school ratings have a more affluent, faster-growing base. Demographically, these areas have large proportions of high-earning households and marginally higher numbers of households with children, and stand to benefit as Millennials age into their peak earning years and highest family creation rates,” said Tochertmann.  “Investors looking to capture superior renter demand should take note.”


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