Times are changing. Take-a-look at the Woman’s March on Washington for example. According to the Washington Post, it was likely, the largest single-day demonstration in recorded US History. On January 21, 2017, about 1.3% of the US population participated.
All this change, but why? Simple question, simple answer. People are attracted to what they desire, not what they are told to do. As a result, millennials are not eager to get married and buy a home. With all the changes in America, why be tied down to tradition? Raise the bar. Of course, leading to the topic of this blog, our country is raising the rent!
There are many reasons for the change in rental prices. When you look “on a broad scale, the new housing supply is not keeping up with the demand, which in turn, increases the rent in cities across the country (Bloomberg). What’s fascinating about this is that based on Harvard’s Joint Center for Housing Study, it seems financially unmanageable for the renters. The results showed that “48% of renters spend at least 30% of their household income on rent in 2015”, (Bloomberg) and this rent-to-income ratio hasn’t changed much either.
It doesn’t immediately make sense. With almost half of the renters spending a whopping 30% of their household income on rent, how do the property owners not tank when the rent goes up? You would think that for the 48% already spending so much on rent, a rent increase would force them to move out. That would then leave these properties with a lot of vacant units, no?
The truth is, no. They don’t have a lot of vacancies at all. It turns out that “households spending at least 30 percent of their income on rent…” happen to be“…concentrated in metro areas on the East and West coast…” (Bloomberg). In these areas, there is an abundance of new renters coming in. The rise in rent is not raising vacancies because of three types of high paying renters; the empty nesters, the millennial workers, and the established.
First, the empty nesters. They are “downsizing from homes they owned into rental apartments” (Bloomberg). No longer needing the extra space, and with the new freedom, why not move into the city? The amenities offered at the multifamily properties these days are hard to pass up. The options are endless. It doesn’t take much to sell the empty nesters either, “fairly standard options like a gym, library and golf simulator” (NYT) usually suffice.
Second, there are the millennial workers. Advancing in their career, these millennial professionals are generally not ready to purchase a home. They are unsure about what the future holds. Interviewed by the NYT, a millennial reports, “I’m 33, and I don’t know what’s to come in the next year or two”. Until the next stage of their lives, the millennial workers are drawn to amenities like “rock ’n’ roll rehearsal rooms, Imax theaters, bike-repair stations, stargazing sessions, woodworking shops, greenhouses for growing herbs, or those doga classes”(NYT) all offered in their apartment building. With rental perks like those, uncertainty about what is next, and the lack of desire to own at all, it’s obvious why so many millennials rent over own.
Third, we have established renters. This group of people has been around the block. They know that “… back in the day, the great incentive to owning was that the product was better than a rental…” but now you can easily “…get the high-end finishes…” at a rental property. Without buying, rentals now offer “…that quality and…more sophisticated design… ”(NYT). It’s much more attractive to spend the money on lifestyle in the city rather than property tax. Beyond the amenities already mentioned, there are also rental properties offering “rock bands and comedians for in house performances, also to…other get-to-know your-neighbor activities” (NYT), so why settle for less?
The changes in our society, our way of living, our raise in rent, they are all leading the nation to what’s next? Innovative ideas are coming to life. What is already developed is getting upgrades. There is an app now for everything to make life easier. Of course, the multifamily property owners are aiming to raise their ROI by appealing to the customers with their attractive amenities. The empty-nesters, millennial workers and the established renters are paying rent on the high end for all the right reasons.