With mortgage rates higher than they have been in years, more high-income earners are opting to rent rather than buy.
The decision is causing a major problem for middle and low-income renters who are consistently finding it harder to find a place within their budget.
RentCafe analyzed U.S. Census Bureau data and found in San Francisco, households making more than $150,000 a year made up more than a third of the rental market. The city has some of the highest prices in the country, but places like Seattle, Washington, D.C., Chicago and Houston have all seen their share of high-income renters increase recently.
“I think there are two broad explanations for [the rise in high-income renters],” said Whitney Airgood-Obrycki, a senior research associate at the Joint Center for Housing Studies at Harvard University. "The first is that households are facing so many constraints that they’re not able to access homeownership. And then the second is there’s actually some shifting in preferences and so they’re choosing to remain renters.”
Airgood-Obrycki believes high interest rates for mortgages, student loan debt and the decreasing number of starter homes are a few reasons why high-income earners are choosing to rent right now.
The student loan debt, specifically, has prolonged the inability to save for a home, even for those with a six-figure salary.
A growing number of people are moving due to rising costs
More people are moving due to factors such as changes in employment, proximity to family and the rising cost of living.
“There’s just not inventory to buy,” said Airgood-Obrycki. “At the same time, we’re also building fewer starter homes for entry-level. They used to be about a third of the market and now they’re down to just about 7% of the market, so the homes we’re building are just larger and more expensive.
”Naturally, this has made it tough for middle and especially low-income renters to find places as these high-income renters are not always choosing to live in luxury buildings.
According to the National Low-Income Housing Coalition, there were 11 million low-income renter households last year, but only 7.4 million units on the market that fit their budget.
“These households are just severely cost-burdened, so they may not have somewhere else to go that is affordable to them,” said Airgood-Obrycki. “What seems to be happening is that there is some doubling up that will happen, but there’s also taking on a lot more financial burden to be able to afford anything in that market.”
Airgood-Obrycki says new builds offer a solution as they would free up inventory.
Last year marked the highest number of new builds since the Great Recession, according to the National Association of Home Builders. However, the group expects the number of new builds to decline from 500,000 last year to 400,000 this year.
Other solutions, Airgood-Obrycki says, are subsidies for lower-income families and a more promising housing market.
