Rental apartments are glamorous and desirable for many well-off Millennials and Gen Xers.
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Homeownership is the one true goal for Americans seeking financial security. At least that’s the advice handed out like candy at Halloween or beads at Mardi Gras. But, in fact, many Americans choose to rent, not because they can’t afford to buy a home, but because they find renting to be advantageous.
A newly published report from RentCafe.com about high earners and millionaire renters indicates that the American household is changing as homeownership is not a priority for everyone, especially not for Millennials and Gen Zs. With 43 million families living in apartments, the highest level in half a century, renting is popular even among high earners who are able to buy, but prefer to rent their home instead. In fact, the most recent analysis of IPUMS (Integrated Public Use Microdata Series) data shows that the number of renters with annual incomes of over $150,000 grew by 82% between 2015 and 2020, faster than renters overall, who inched up by 3.2% during the same time frame. There are now 2.6 million high earners living in rentals in the U.S. and among them is a new ritzy kind of tenant: the millionaire renter.
High-income renters earning $150,000 or more saw rapid growth of 82% in five years — the most significant increase among all income groups — followed by renter households with annual incomes between $100,000 and $150,000. At the same time, middle-income renters grew at a slower pace, but still posted double-digit increases. The only segment to register a drop was that of households earning less than $50,000, which decreased by 11.2%. This is explained by low-income renters moving in with family members when the pandemic started, as well as households whose earnings grew and transitioned to higher income groups.
Why would those who can afford to buy turn to renting? Part of the answer may be found in high home prices, which made homeownership less attractive, especially for those well-heeled residents in pricey locations. This becomes even more obvious when comparing home prices to renter income in the cities with the highest increases in high-income renters: In nine of the 10 cities where the number of top-earning renters leapfrogged considerably, growth in home prices was higher than the national average (29%.)
An even more interesting phenomenon of the past few years is the rise of an unlikely new kind of tenant — the millionaire renter. The number of renter households with incomes of more than $1 million reached a record high of 3,381 in 2020 — three times as many as there were in 2015, when 1,068 millionaires were renting their homes in the U.S., according to the most recent data from IPUMS.
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While home prices could be considered an obstacle even for high-income renters, what stops some millionaires from stepping on the homeownership ladder? It might be an issue of comfort and smart investing. Often homebuyers are struck with the realization that their new property needs more maintenance than expected. Couple this with the flexibility of moving between cities to pursue new career opportunities and that explains why even the most affluent sometimes choose to rent their home. Additionally, some high-earners, including some millionaires, prefer to funnel their cash into other types of assets that hold value.
According to a survey from Charles Schwab, Americans consider that an average net worth of $1.1 million represents being “financially comfortable.” And being financially comfortable appears to be a Millennial trait, with this demographic making up a majority (28%) of millionaire renters. For many Millennials of homebuying age and with above-average incomes, lifestyle renting is a better choice than owning. This mindset is mirrored among millionaire Millennials, too, who, unlike their Baby Boomer parents, decide to rent despite having the financial resources to own.
Gen X follows closely behind, making up 23% of millionaire renter homes. As the first generation that redefined and broke away from the American dream of homeownership, Gen Xers initially turned to renting due to the strain brought on by the 2008 housing crisis. Today, they’re following the same lifestyle renting trends as their younger counterparts.
According to IPUMS data, the rental home size of millionaire households varies across the U.S., with three-bedroom homes being the national average. Millionaire renters in Washington, D.C. have the largest homes. On average, they have five bedrooms, followed by Jersey City, NJ with four. Alternatively, in cities like Los Angeles, San Francisco and New York, the average home size is three bedrooms.
Wealthy renters live mainly on the coasts, specifically in California, New York and Washington, DC.