The rise of the millionaire renters

OF the millionaires living in Jersey City back in 2015, none of them were renters. And why would they be?

The average price for a single-family house in a Jersey City neighbourhood like Bergen-Lafayette, where 19th-century Victorians intermingle with traditional brownstones just a stone’s throw from Liberty State Park and its stirring views of the Manhattan skyline, was about US$230,000 back then – deeply affordable for the rich, even for a house that needed a lot of work.

By comparison, according to reporting at the time, the costs for a condo in downtown Jersey City were higher, about three times the cost for homes in more outlying neighbourhoods, as buyers priced out of Manhattan or Brooklyn sought the next best thing. Downtown condos were pricey, but still, nothing a millionaire would sweat.

Five years later, though, 104 millionaires were renting their homes in Jersey City, according to an analysis of US Census Bureau data by the rental marketing software company RentCafe. And not just in New Jersey: In Washington, DC, the number of millionaire renters tripled over this five-year span, from 41 to 121. For San Francisco, this figure shot up an astonishing 1,629 per cent.

Now, the total numbers of millionaire renters aren’t huge: That huge percentage leap still only adds up to 294 leases in San Francisco. But their emergence on both coasts over this period is significant, because these millionaire renters are just the tip of the iceberg.

Over a short time, the number of affluent households across the US deciding to rent rather than buy exploded. For several major cities – Boston, Chicago and Seattle among them – the number of renter households earning more than US$150,000 per year more than doubled between 2015 and 2020. Affluent renters made up a sizable share of the hottest housing markets by 2020 and a growing share in secondary markets such as Dallas, Phoenix and Charlotte, North Carolina. 

In fact, nationwide, the number of renters in this high-income band grew by 82 per cent, according to RentCafe. That makes affluent rental households the fastest-growing category of renters in the country. And that means that cities around the country are catching up with San Francisco in terms of their renter class.

Segments of renters with more moderate incomes saw their ranks grow, too. The bank of renters earning less than US$50,000, however, registered a profound dip of more than 11 per cent.

So what explains this rising tide? According to Doug Ressler, manager of business intelligence with Yardi Matrix, which provides data services (such as RentCafe) for property managers, it’s a matter of consumer preferences.

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Convenience and security lead people to want to live in mid-rise or high-rise buildings with concierge services located near amenities. Well-to-do renters are committed to city living, so they’re not willing to bite on homes they can afford that are farther away from city centres.

Renting an apartment “also gives you the flexibility to move in and move out, as opposed to buying and stabilising in a condo that restricts your freedom of movement,” he says.

Of course, a lot of those renters would buy if they had the option. But the construction of homes simply hasn’t kept pace with the demand for homes nearly anywhere. That means that millennial renters who saw their salaries rise or who formed two-income households during this period kept renting even after finding the financial footing to buy.

What’s more, the limited housing supply has led to higher prices for homes and more competitive bids, including all-cash purchases and investor activity. That leaves even affluent households locked out of homeownership – at least in the places where they’d like to live.

Perhaps counterintuitively, rents are finally starting to drop after a decade of steady increases and a pandemic spike. A nationwide adjustment of people ditching their roommates or finding larger apartments for the work-from-home era has run its course, and as people once again move for schools or jobs, seasonality has returned to rental markets. “We’re seeing some right-sizing in rental markets and home values as things calm down,” says Corianne Payton Scally, senior fellow for the Metropolitan Housing and Communities Policy Center at the nonprofit Urban Institute.

Perhaps the most remarkable thing about the rise of millionaire renters is what happened at the other end of the income spectrum: the collapse in the low-income band of renters. The share of renters earning less than US$50,000 simply evaporated, falling 11 per cent, as poorer renters moved in with family members. Or as their wages increased, they climbed the economic ladder. That doesn’t mean that low-income households disappeared entirely. Poorer tenants are much worse off after this rental-demographic shift, since they must now compete with more well-off renters for apartments in the most productive areas (places with the best jobs, location and amenities). Falling rents are good for the affluent and, as absurd as it might sound, good for millionaires with leases. But rents may never fall far enough for the tenants being left behind. BLOOMBERG