They can afford to buy homes. They just don’t want to.
That is the growing sentiment among older, wealthier Americans, who are now downsizing from big suburban homes and increasingly turning to the rental market.
The number of higher-income rental households has doubled in the last decade, according to a new report from Harvard’s Joint Center for Housing Studies, and that trend will likely increase in the coming years as more baby boomers downsize.
“I think it reflects a change in attitude coming out of the housing crash and a greater appreciation for the virtues of renting,” said Chris Herbert, managing director of the JCHS. “There had certainly been a bias toward owning being a better choice, and that is something people are weighing more carefully now.”
High-income households drove nearly 30 percent of rental growth over the last decade. That, in turn, has fueled development of luxury apartment buildings, especially in major metropolitan areas. Completions of these units averaged 300,000 annually over the last two years, their highest level since the end of the 1980s, according to JCHS.
“Much of this new housing is targeted to higher-income households and located primarily in high-rise buildings in downtown neighborhoods. Given that construction and land costs are particularly high in these locations, the median asking rent for new apartments increased by 27 percent between 2011 and 2016 in real terms, to $1,480,” according to the report.
That means households would need an income of at least $59,000 to afford these apartments, which is significantly higher than the median renter income of $37,300.
Jane Fairweather, a Realtor in Bethesda, Maryland, who sells high-end suburban homes, is well-acquainted with the trend. Many of her clients she said, are moving into luxury rentals. They are put off by high prices for condos and seeing less and less value in homeownership.
“You have to own your properties now 10 years to get your sales costs in and out,” said Fairweather, a baby boomer herself. “I think people do wonder, ‘at this stage in my life, is this where I choose to be for ever and ever?'”
She also points to flexibility. Today’s older Americans want to be able to move to where their children and grandchildren are.
Congress is also giving them new reasons to rent. The Republican tax plan will likely remove some of the deductions that favor homeownership.
“They’re really saying why bother owning? It will be interesting to see going forward how many people opt for rentals because there’s no value in it,” said Fairweather.