Main Takeaway: The traditional renter demographic is evolving. From an increase in millionaire renter households to changing preferences in housing amenities, multifamily owners and investors have a unique opportunity to tap into this evolving renter base amidst a slowing economy.
Story: If you thought renters were primarily those trying to save up for a home or younger folks just starting out, it’s time to reconsider. The renter demographic is significantly shifting, and multifamily investors stand to gain from these changes.
🤑 Rolling in the Dough: Millionaire Renters on the Rise
According to a recent RentCafe report, millionaire renter households have tripled in numbers.
“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.”
Yes, you’re reading that right—those with big bucks are seeing the appeal of renting over homeownership. Specifically, the number of renter-occupied households earning over $150,000 annually has increased threefold. This demographic is looking for luxury, flexibility, and prime locations, opening up a lucrative segment for multifamily developers.
Here are the primary metros that are seeing an influx of high-income renters across the United States:
🤔 Changing Preferences: What Renters Want
With a shift in who is renting, there’s also a shift in what renters want. Buildium’s recent demographic analysis indicates that priorities evolve as millennials age and Gen Z enter the market. Think smart homes, green spaces, and pet-friendly policies. Single-floor living and community amenities play a crucial role for the older demographic.
There’s also some interesting findings aside from amenity and design preferences:
- Family Ties: Multigenerational families comprise 25% of renter households, and couples with kids sit at 18%.
- Burbs: 42% of renters live in single-family rental properties, about 45 million people in total. Further, 25 million of the nation’s 79 million renters are in the suburbs.
- Aging Renters: The number of households renting increased across all age groups over the last ten years, but the biggest increase was among the older demographic. Renting among this age group jumped 32% between 2010 and 2020.
Multifamily investors must stay agile, adapting to these needs for maximum yield.
📊 Rental Prices: Trends and Patterns
While renter demographics are shifting, rental prices are, unsurprisingly, on the move too. According to Rent.com, there’s a notable fluctuation in average rent prices across various states. Investors should focus on regions where average rents increase, paired with favorable renter demographics, to maximize returns.
In the Midwest, August showcased the most significant annual growth, consistent with a trend that started in early 2023. Despite its sustained growth, the Midwest still offers the nation’s most economical rent prices. The median rent in the Midwest is $1,434, which is $230 less than in the South and over $1,000 less compared to the Northeast and West. This notable price gap stems from the Midwest’s modest growth throughout 2021 and 2022.
While other regions experienced sharp rent hikes during those years, the Midwest only saw annual increases ranging from 2% to 6%. However, even as annual growth rates have tapered off in the South, Northeast, and West over the past year, the Midwest’s growth rates have remained consistent, fluctuating between 4% and 6%.
As of this month, the South and the West — which have seen a consistent decline in yearly rent growth since January 2023 — are the only regions registering annual decreases. The South’s decline was subtle at -0.30%, while the West dipped by -1.11% yearly. Meanwhile, the Northeast reported a positive annual change of 1.2%, which is a substantial drop from its almost 5% growth in July 2023.
💸 Affordability Issues & Implications
Despite the rise of millionaire renters, affordability remains a significant concern for many. As per a study by HUD, many urban areas are seeing heightened rental costs, pushing traditional renters to reconsider their options. Here are some of the key findings:
- In the past half-year, 44% of renter households in the U.S. felt a strong urge to relocate, primarily due to rent hikes and inadequate maintenance by property owners.
- Over the same period, these pressures compelled 10% of U.S. renter households to relocate.
- Households of color that rented were more prone to needing to vacate their properties and faced higher mandatory relocations.
- Renters in the South felt the most compelled to change residences, while those in both the West and South regions encountered the most instances of obligatory moves.
This presents an opportunity for multifamily investors to diversify their portfolios, accommodating luxury renters and more affordable workforce housing assets.
Expert Take on Multifamily Renter Demographics
“What we know is that properties that are accessible and appealing to a majority of renters will always outperform those that are only affordable to a limited population. Small rental properties—which tend to be owned and managed by small businesses—have the space to adapt to families’ evolving needs over time, and tend to be more affordable than properties targeted at high-income renters by choice, positioning them well against the changes we expect to see over the next decade.” — Robin Young, Buildium’s Senior Researcher