Michael D. Lacy
Senior Vice President, Property Operations at UDR
Thanks, Tom. The topics I will cover today include our fourth quarter same-store results, early 2023 trends, our full year 2023 same-store growth outlook, including factors that could drive results to either end of our guidance range, and an update on our continued innovation and operating efficiencies.
To begin, strong sequential same-store revenue growth of 2% drove year-over-year same-store revenue and NOI growth of 12.1% and 14.5% in the fourth quarter. Results were driven by: first, robust blended lease rate growth of 5.4% was well above historical norms for what is usually our slowest leasing period of the year. This growth locked in our approximate 5% 2023 earn-in, the highest level in our history by more than 200 basis points.
Second, sustained strong occupancy of 96.8% exhibited our ability to efficiently convert traffic into signed leases. Third, we remain focused on enhancing our rent roll up, which resulted in higher turnover than expected from twice the usual volume of resident skips and evictions. And fourth, collection rates held steady. The number of long-term delinquent residents across our portfolio continues to trend closer to our historical [Indecipherable], with approximately 400 residents today or less than 1% of total units. This is down from over 700 delinquent residents earlier in 2022, helping to reduce our bad debt reserve.
Next, early 2023 results and trends. In my experience, there are four primary indicators that help inform us of the strength of the operating environment. These include leasing traffic, concessions, absolute affordability and relative affordability. Thus far in 2023, we continue to see favorable trends. First, demand remains relatively healthy. Traffic is roughly in line with the elevated levels we saw a year ago and well above the long-term average, but prospective residents are taking longer to make their rental decisions. Second, concessions remain minimal and have been primarily concentrated in certain submarkets of San Francisco and Washington, D.C., averaging around two to three weeks. Recently, concessions of one week on average have appeared in Austin, Dallas and Denver. Third, our residents' balance sheet appear to be holding up, portfolio-wide wage growth has largely kept pace with rent growth since COVID began, resulting in steady rent to income levels in the low 20% range. To date, we have seen scan evidence of residents doubling up. In fact, 42% of our households are single occupants, up slightly compared to pre-code.
And last, relative affordability remains in our favor. Renting an apartment is approximately 50% less expensive than owning a home versus 35% less expensive pre-COVID. Only 8% of move-outs in the fourth quarter were due to home purchase, roughly 30% less than typical. With this backdrop, blended rate growth for the first quarter is expected to average between 3% and 4%, similar to historical norms, and driven by renewal rate growth of 7% to 7.5%. New lease growth of negative 70 basis points in January was slightly below the pre-COVID average, but it is positive in February, and we expect further improvement as we enter peak leasing season.
Turning to full year 2023. Our same-store revenue and NOI growth guidance is 6.75% and 7.5%, respectively, at the midpoints. We are also forecasting expense growth of 4.75% at the midpoint, with real estate taxes and insurance, the largest pressure points. Underlying the midpoint of our guidance range is a 2023 blended rate growth forecast of approximately 2% to 3%. We triangulated into this estimate using third-party forecast, input from our field teams and the output from a multifactor rent growth forecasting model we developed internally.
Through our predictive analytics work, we have found that total income growth is the primary driver of market rent growth. Within this model, consensus expectations that job growth will be slightly negative in 2023 are fully offset by the expectation of approximately 3% wage growth. In addition, a declining homeownership rate and slowing, but still positive, consensus real GDP growth should continue to benefit market rent growth this year, offset somewhat by increased new supply. In short, even if job growth goes slightly negative, we still see a path to positive rent growth in 2023.
With this in mind, our 6.75% same-store revenue growth guidance midpoint can be achieved through our approximate 5% earn-in, a 125 basis point contribution using a midyear convention from blended rate growth comprised of new and renewal rate growth of 1.5% and 3.5%, respectively, an approximate 50 basis point contribution from our unique innovation initiatives. The high end of 7.75% would be achieved through improved year-over-year occupancy, additional accretion from innovation and blended rate growth similar to the pre-COVID average of 4%, comprised of new and renewal rate growth of 3% and 5%, respectively.
Conversely, the low end of 5.75% reflects a 75 basis point contribution from full year blended rate growth of 1.5%, comprised of flat new lease growth and 3% renewals, which is approximately 250 basis points below the pre-COVID average renewal rate. Because of the relative strength of our January and February blended rate growth, we need only nominal blended rate growth of 1% on average through the rest of the year to achieve a low end. For reference, even during past downturns, our lowest trailing four quarters average renewal rate growth was approximately 2%.
Ongoing regulatory challenges could impact our views as 2023 unfolds, but we should have visibility into 65% to 70% of our full year same-store revenue by the end of April. We plan to reassess our guidance assumptions at that time.
Finally, we continue to drive forward on innovation with the intent of further expanding our 300 basis point controllable operating margin advantage versus peers. Initiatives underway are expected to generate at least $40 million in incremental NOI by year-end 2025. $5 million to $10 million of this is included in our 2023 same-store guidance ranges, and will largely be focused on revenue upside, such as our building-wide WiFi project that enables seamless whole-building connectivity, our customer experience project to enhance satisfaction and drive property-level ROI initiatives, and the expanded use of big data to improve our pricing engine.
Innovation has and will continue to drive more dollars to our bottom line as we roll out initiatives across our legacy portfolio and on external growth over time. As an example, on the $2.6 billion of third-party acquisitions we completed between 2019 and 2021, innovation has accounted for an additional 50 basis points in yield expansion above what the market alone would have provided, or around $13 million of incremental NOI. This translates to approximately $275 million of value creation.
In closing, a special thanks goes out to all of our teams for their relentless efforts to drive the best results possible across our markets. Your performance in 2022 was exceptional. And with your help, we will continue to leverage new and innovative tools to drive results in 2023 and beyond.
I will now turn over the call to Joe.
