Why the US Renter Boom Has Ended

Economic cycles: the rental boom was largely an affluent urban phenomenon.

But millennials et al are now making enough income to justify purchasing rather than renting, especially as rental prices have skyrocketed. JL


Henry Grabar reports in Slate:

The number of Americans who rent their homes declined in 2017 for the first time since 2004. The foreclosure crisis dumped a lot of high earners who have traditionally bought homes into the rental market. Rapidly rebounding housing markets, with skyrocketing home prices in big cities, kept them there.  It’s been largely a high-income phenomenon.  60% of the growth in rental households has occurred in households making more than $50,000. The share of new units renting for over $1,500 a month has risen from 15% to 40%. Now the number of renters has reached a plateau.

The twelve-year renting explosion may have come to an end. According to a new report from the Harvard Joint Center for Housing Studies, the number and share of Americans who rent their homes have appeared to decline in 2017 for the first time since 2004.

It’s hard to appreciate the scale of that decade-plus surge, which began in 2004, jumped as homeownership struggled during the foreclosure crisis, and didn’t slow down as a lack of new construction during and after the recession helped housing markets recover more quickly than wages. The homeownership rate hit a 50-year low in 2016.

The impact of 10 million new tenant households in the last 10 years has put tremendous pressure the stock of rental apartments, particularly in big cities. While rents have abated slightly in the past two years, nearly half of rental households pay more than 30 percent of their income in rent, and the rate is much higher in high-cost states and the nation’s largest cities. Like all crises, the affordability crisis was worse for the poor: Low-income tenants are flagrantly underserved by the federal housing assistance meant to protect them from eviction, homelessness, and housing instability.

But here’s a key to understanding how the renting boom of the past decade changed the country: It’s been largely a high-income phenomenon. According to the Harvard report, about 60 percent of the growth in rental households since 2006 has occurred in households making more than $50,000. (That’s slightly below the U.S. median income, but renters’ income as a whole is well below the U.S. median.) In 2006, the percentage of renter households in that bracket was under 35.

The trend is even more dramatic at the very top: Nearly one-third of all rental household growth over the great renting boom came from households making more than $100,000 a year. (In 2006, those households represented less than 10 percent of renters.) The country has 3 million more high-income renters than it did in 2006; they now make up nearly a fifth of tenant households.

It’s no surprise that much of this has happened in cities: In New York, 65 percent of new rental households make six figures. In Los Angeles and Washington D.C., that number approaches 50 percent. And in the San Francisco metro area—which includes not just the city but also Oakland and a raft of suburbs—a whopping 93 percent of new rental households, over the last decade, make more than $100,000 a year.

(In 2006, those households represented less than 10 percent of renters.) The country has 3 million more high-income renters than it did in 2006; they now make up nearly a fifth of tenant households.

This helps explain, in part, why new construction in those cities has been so relentlessly skewed toward luxury units. While the tenant population continues to earn less than homeowners, the share of new units renting for over $1,500 a month has risen from 15 percent to 40 percent. It’s not in your head: There are lots and lots of new, white-collar renters with big paychecks in your city. If they aren’t living in new construction, they are gentrifying the old Victorian next door.

But even renters taking home high salaries feel the burden on their pocketbooks. (Facebook employees reportedly asked the company for help with their rent.) One of the first visible political impacts of the high-income renter boom has been the YIMBY movement (for “yes in my back yard”), which seeks to take the brakes off new housing production, whatever the model. Critics say the movement launders tech money to support unaffordable new projects. But whether you like it or not, luxury housing meets a need.

Having said that, how much does the relative wealth of new tenants in big cities affect new housing construction—and how much have achingly high rents influenced where people choose to live? Perhaps the most startling finding is the slow growth in those same cities of lower-income rental households, despite the overall growth of those metro areas during a national boom in renting. There’s some evidence that those people, unable to find housing, are simply moving away.

In short: The foreclosure crisis dumped a lot of high earners who have traditionally bought homes into the rental market. Rapidly rebounding housing markets, with skyrocketing home prices in big cities, kept them there. Now the number of renters has reached a plateau. Is it about to fall? And if it does, will those high-income renters be the first to buy? (That this is occurring right as Republicans prepare to neutralize the mortgage interest deduction and some local property tax deductions, removing two big financial perks of homeownership, adds an interesting twist.)

If this class of residents is on the cusp of a homebuying spree, despite whatever the tax bill portends, rents will fall across the board. That would be good news for everyone but the landlord. If they don’t, they could push to reshape a local and national political structure that has long favored homeownership as not only an economic goal but the mark of a good citizen. And that change, ultimately, might be even better.