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They’re a big catch for real estate brokerages: high-income renters who are unaffiliated with an agent and could serve as repeat clients for years.
However, apartment property managers are after the same prized clientele and enjoy advantages over brokerages that reach far deeper than just high mortgage rates and low purchase affordability, according to an Intel analysis.
“Our renters are renters by choice, and most want to be in a modern, amenitized, close-to-the-action apartment complex with competent management,” Nicholas Mills, director of research for the large apartment management company the Bozzuto Group, wrote in an email. “Our retention is remarkably high this year — but so is most of the REITs as well — and our move out to homeownership is at all-time lows.”
Intel contacted real estate experts and reviewed the data behind this trend, including exclusive insights for Intel subscribers from a recent survey of U.S. consumers produced jointly by Dig Insights and Inman.
Here’s what Intel found about just how big this group of high-income renters is — and why it might be difficult in the near future to lure them away from landlords and into the purchase market.
A landlord’s moment
What Mills and other large multifamily property owners have going for them may appear to be a moment-in-time advantage. Home prices are at all-time highs, and mortgage rates have still not retreated anywhere close to lows seen in the last few years.
The financial hurdles real estate agents and their clients face today, however, are just the latest pressure points in a multi-generational trend working against the for-sale market. Residential mobility in the U.S. is in a fourth consecutive decade of decline, with the trend most visible in young adults and renters.
This dynamic, established by U.S. Census Bureau data, is supported by findings from a recent survey jointly produced by Dig Insights and Inman.
In October, Intel got a glimpse into the worlds of nearly 1,200 of America’s 44 million renters as part of a larger survey of 3,000 potential homebuyers.
- The results shed light on a group’s motivations, aspirations, and financial realities in which 4 out of 5 were at least on their second rental.
Many of those renters have long been attached to their current residences.
- Thirty percent of respondents had lived at the same rental property for 1 to 2 years, 28 percent for 3 to 5 years, and another 13 percent were in year 6 or more.
Despite a recent drop in mortgage rates, buying a home remains as costly as ever — much less paying for its upkeep. But there are some renters, commonly referred to as “renters by choice,” who are paying as much as, if not more than, the monthly cost of owning a home.
- Almost 17 percent of the renters surveyed by Dig in partnership with Inman declared gross annual incomes of $75,000 or more, and about half of that group topped $100,000.
- 2 out of 3 said their rent comprised 30 percent or less of their gross monthly income, a long-held standard for being burdened by one’s housing payment.
Housing-burdened or not, though, even well-heeled renters have budgets and financial constraints. All survey respondents who indicated they were both likely to buy a home in the next 12 months and already shopping were asked how higher mortgage rates had affected their search. According to the higher-income renters, nearly half had shifted their search to lower-cost areas, and 40 percent said they were forced to save a larger down payment.
For those who said they were unlikely to buy a home, high home prices were the most selected reason, followed by down payment concerns and mortgage rates.
Being happy with where they lived came in fourth, a reminder that deciding to rent or buy a new home is a qualitative process, too. People move for many reasons, but the most common cause may be innate: a desire for better housing.
It’s the home
The Census Bureau’s Current Population Survey is integral in helping track and decode mobility trends. The population survey offers movers four reasons for moving — housing, family, employment or “other” — for respondents to choose from, but housing far outpaces the rest.
As in recent years, 41.6 percent of movers cited reasons related to housing as the reason for their relocation in 2022. While this was a full year-over-year percentage drop, housing was still 15 percentage points higher than “family,” despite a notable uptick.
According to Riordan Frost, a senior analyst at the Joint Center for Housing Studies of Harvard University, more recent declines in mobility are mainly due to a nationwide housing shortage following the Great Recession.
“More people did move during the pandemic—at least, parts of the pandemic,” Frost wrote in a March 2023 research brief. “By the end of 2021 and throughout 2022, however, mobility rates resumed their long-term decline and fell for almost everyone, with a few exceptions — most notably including homeowners and people in higher-income households.”
A wave of high-end rental supply
Meanwhile, aside from a brief blip during the early pandemic’s low-mortgage-rate free-for-all, landlords have stood to gain most from these high-income renters.
Data from CoStar Group, a provider of commercial and multifamily real estate information and the parent company of Homes.com, offers additional perspective:
- Nationally, market asking rents on 4- and 5-star apartments — those with top-end finishes, amenities, landscaping, etc. — was almost $2,075 per month in December.
- The nation’s most affordable luxury apartments are in the Colorado Springs metro area at $1,725 per unit; the most expensive metro area for similar quality units is San Rafael, Calif., at $5,450/unit.
Those affluent residents are gold to large rental management companies, especially as a historic number of new apartment units work their way into the housing stock. According to CoStar:
- A record 550,000 units will have opened by the end of the year (including 400,000 4 and 5-star apartments), smashing last year’s mark by roughly 100,000.
- Nearly 950,000 apartment units were under construction nationwide in December.
- Almost 70 percent (665,000) are rated 4 or 5 stars. Luxury inventory in Miami’s metro area will expand by 40 percent with the 28,000 units in progress.
- While demand has lagged behind supply lately, the stabilized vacancy rate in 4- and 5-star units remains under 6.5 percent.
More apartments are another possible irritant for real estate brokers, who continue to battle an inventory squeeze. But in at least one scenario, it may have the opposite impact. Aziz Sunderji, a housing strategist and consultant, thinks supply could rebound next year partly because of overabundance in the high-end rental category.
“If rent growth is subdued over the coming years compared to homeownership monthlies, some homeowners will be enticed to sell and move into a rental property,” wrote Sunderji, leading to “a net gain of supply, since sellers would not be buying in such cases.”
About the Inman-Dig Insights Consumer Survey
The Inman-Dig Insights consumer survey was conducted from Oct. 27 to Oct. 29, 2023 to gauge the opinions and behaviors of Americans related to homebuying.
The survey sampled a diverse group of 3,000 American adults aged 24 to 65. To ensure a balanced view, the participants were selected based on criteria that included age, gender, regional distribution, and employment status, reflecting the broader U.S. population.
Statistical rigor was maintained throughout the study, with a margin of error of no greater than 1.8 percent for any one series of responses. This means the results should largely represent attitudes held by the broader U.S. population. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital.
Email Chris LeBarton
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