Why Are High Earners Moving Toward Renting Instead of Buying?

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So you think you have the average American renter all figured out—that they’re a group of young, unsettled, commitmentphobic folks, just starting out and scraping by? Well, you might want to widen out that picture a bit. The reality: The fastest-growing group of new renters includes those aged 50 or older, or younger folks raking in six-figure salaries, according to a new report.

The America’s Rental Housing 2017 report from the Joint Center for Housing Studies of Harvard University outlines a tale of the haves—who could afford to buy a home, but choose not to—and the have-nots, who don’t make enough money to become homeowners. And although overall rental prices are starting to level off, and in some cases even dip a little, there still aren’t nearly enough affordable rentals to meet the overwhelming demand from lower-income renters.

“Rents are continuing to grow faster than inflation,” says Jonathan Spader, senior research associate at Harvard’s Joint Center. “We still see relatively high shares of renters facing cost burdens.”

The new renter: Older and wealthier than you’d expect

Overall, renters had a median age of 40 in 2016—up from 38 in 2016. (In comparison, homeowners are a median 56.) That’s because more baby boomers, whose kids have flown the coop, are downsizing out of their large, suburban homes and opting for maintenance-free rentals instead. No more mowing the lawn and shoveling snow for them! That’s pushing up the median age of all renters.

In addition, more of the newer rental stock, particularly those in 55-plus communities, have the accessibility features that allow older tenants to comfortably age in place. These can include elevators, bars in the bathrooms, and even walk-in showers, which are easier to navigate than a bathtub.

More folks earning some serious dough are also choosing to rent rather than buy.  About 13.3% of renter households made more than $100,000 in 2016. That’s up from 9% in 2006.

That’s partly because some high earners are saddled with high student debt loads, making it difficult to cobble together a down payment. In addition, more-walkable cities, many of which have undergone attractive revitalizations, have also become desirable places to live. So those with means are willing to drop a bundle to lease a unit in a newly constructed high-rise with luxe amenities such as a dog run on the roof.

And in some of the priciest coastal metros such as New York City and San Francisco, a six-figure salary often isn’t enough to become a homeowner. The median rents for a one-bedroom apartment are $2,080 and $2,430, respectively, according to rental website Apartment List. Meanwhile, the median home listing price is $1.9 million in Manhattan and $1.3 million in San Francisco, according to realtor.com®. That’s gotta hurt!

But wealthier renters are still the exceptions to the rule.

“High housing costs in those areas are preventing lower-income households from being able to live there,” Spader says.

About 53% of households earning $35,000 are renters. And renters’ median income is just $37,300 compared with $73,100 for homeowners.

The rental market is slowing—so rents may come down

However, after years of shortages and price hikes, the white-hot rental market is beginning to wane, according to the Harvard report. With fewer foreclosures driving homeowners into the rental market, there’s been a slowdown in the growth of new renters. Plus, the slew of new apartment buildings coming online around the same time has also led to higher vacancy rates, slowing the rate of price increases.

That’s a relief, as prices rose about 15% from 2000 to 2016. The median monthly rent, including utilities, was $981 in 2016, according to the report.

“Rents are continuing to grow faster than inflation,” says Spader. “But now we’re seeing rent growth falling off.”

Vacancy rates are also likely to increase as builders plan to add more than 100,000 new apartments from mid-2017 through mid-2018, according to a recent Apartment List report. That’s compared with about 80,000 new units in the prior 12 months.

About 10% of rentals costing more than $2,450 a month that were completed in 2015 were vacant after 12 months. Just 2% of rentals priced under $1,250 were vacant for a year.

However, these price dips aren’t exactly trickling down to the bottom of the market yet. There still aren’t enough lower-priced rentals to go around, particularly for the poorest tenants.

About 47% of renters were considered cost-burdened for forking over more than 30% of their income on housing in 2016, according to the report. Thanks to a stronger economy and more good job opportunities, that’s down by about 500,000 households from 2014 to 2016.

The number of severely burdened renters, who spend more than 50% of their earnings on housing, also fell by about 400,000 households over the same time period.

But the number of subsidized units is likely to go down because either they haven’t been maintained or their below-market-rate status is set to expire. And potential cuts to various government rental assistance programs, which were included in the Republican budget proposal, could worsen the situation.

“While the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes,” Christopher Herbert, the Harvard Center’s managing director, said in a statement.

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