Why Wealthy Austinites Are Choosing to Rent Instead of Buy
by Alex Lewis
on Tuesday, November 7th, 2017 at 4:05pm.
A peculiar housing trend has emerged in Austin and many other cities across the United States in the last few years. The trend disrupts what many thought was an inseparable correlation: high-income families prefer buying homes instead of paying rent. The vast majority of affluent families, until lately, were homeowners. As soon as they had the means to begin building equity in their own home, these individuals took the real estate plunge into home ownership.
But lately, this eons-old trend has diminished substantially. According to data released by Rent Cafe, the trend for high-income households to rent is on the rise.
The number of high-income households who choose to rent has increased by a whopping 217% from 2005 to 2015 across the United States. Conversely, this same “high-income” bracket, which is defined as households who earn $150K or more a year, only increased in homeownership by 82%.
The top cities for massive increases in high-income renters
According to Rent Cafe’s 2014-2015 study, these are the cities where most of these high-income renters reside:
At #8, the data for Austin shows a 31% increase in the number of high-income renters, as opposed to the 14% increase in the number of high-income homeowners. From our own data, JB Goodwin found that in August 2017 rent was up 7% in Austin over the same month last year.
Every year since 2009 the largest year-to-year increase in renters has consistently been in the top income bracket. The affluent are choosing to rent and not buy. But why?
What is a ‘Lifestyle Renter’?
Many in the real estate world are trying to understand this phenomenon. Some point to heavy debt among Millennials. Young professionals may continue signing annual leases as a way of prioritizing their income toward paying off college or credit card debt.
Others posit that the high-income renters are a response to the Great Recession. Even after almost a decade, some high-income families may still not be ready to trust real estate as a safe investment.
In the end, the reasons change from person to person. But, one thing is clear: choosing rent over mortgage has resulted in a lifestyle choice.
It’s a trend that’s proliferated in large cities. And, as is the manner of supply and demand, developers are changing the way they design apartments and multi-family homes.This new wave of high-income renters are changing the way investors and developers build properties.
“A closer look at the data reveals that in 2015, 75% of all large multi-family rental developments completed were high-end rentals. The ratio of high-end to total apartments completed increased by a staggering 63% from 2012.”
Developers are dead-set on building for rich renters, which may come at a cost. If only 1 in 4 new apartment complexes across the US is being built for mid-to-low income renters, then it is clear that the availability of affordable housing is definitely in question. According to this RentCafe data cited above regarding luxury development, in Austin alone, 92% of apartment buildings that went up in 2015 can be classified as luxury living.
But Austin renters remain less burdened than in many other major cities across the United States. According to ApartmentList, 47.9% of Austin-area renters are cost burdened, just under the national average of 50.6%. This means that renters in Southern California and South Florida are typically more rent-burdened than in the Mid-South.
To put that in perspective, conventional wisdom has it that rent should comprise a maximum of 30% of your income. From 30-50% of income, renters can be considered moderately burdened, with anything above 50% regarded as severely burdened. Lifestyle renters don’t seem to heed the 30% rule when making choices about where to live.
At the end of the day, Austin’s growing population of high-income renters has resulted in the creation of immaculate apartments throughout the city. Residents enjoy short work commutes, luxury living, and many of the amenities that have become custom-build: weight rooms, swimming pools, full kitchens, and modern designs. We may not know all the reasons this renting trend began, but momentum alludes to its continuation in the coming years.