The Rise of Millionaire Renters: A New Norm in Real Estate
Once upon a time, renting represented little more than an obligatory stopgap en route to the American dream of owning your very own home. It was what you did if you were building a down payment for your future home, somewhere off in the distance.
But the game has changed significantly in recent years. Renting is increasingly becoming the choice of affluent consumers and for some, it may be a long term one. Even the richest Americans are falling into the “forever renters” category.
The Transition To Renting Wealthy
Thanks to IPUMS at the University of Minnesota, we know that (median) income of renters with over $750K per year went up to make 10.5% from 2018 through 2022. That is the highest share of wealthy renters on record since at least the mid-2000s.
Households belonging to the 5% with a net worth hit 3.7% in 2022, which is a record, as per the Federal Reserve’s Survey of Consumer Finance data I used above (renters sprouted at an all-time high).
For the real estate industry, the movements are particularly memorable since they potentially reflect a vast (and hopefully timely) evolution in more conventional property tendencies, with renting not owning even among those most adroit within their pocket.
Not one big city in the USThe average monthly mortgage bill is £1,435 while the cost of renting averages at closer to £770 a month across all of our major cities.
In a recent report from Bankrate, we learned that nationwide, homeowners are spending approximately $1,000 more every month than renters — so yes, even millionaires can benefit from being full-time tenants.
Why The Ultra Wealthy In US Are Renting
Gone are the days when renting was thought to be just a temporary measure on the pathway towards ownership, as taxes continue to soar for property owners, along with mortgage rates and insurance premiums that have taken away the most robust layers of aspiring buyers.
At the same time, wealthy Americans are redeploying their capital in other investments in say stocks,bonds or business rather that keeping them illiquidly stored in real estate.
If one of the reasons among many others, is that rich are becoming lifelong renters is because of convenience and flexibility. High-net-worth individuals who like to spend their money on experiences rather than real estate are drawn to the idea of living in luxury rental properties with little hassle.
Impact on Real Estate Development
The shift of rich renters is transforming how developers and designers view new real estate projects. Indeed, developers like Post Brothers in Philadelphia are already appealing to this cohort with properties that boast larger floor plans, high-end amenity packages and even playrooms for children.
If this trend persists, luxury rentals might not be an immediate necessity but a prolonged way of life for the wealthy in America.
Which points to the real estate industry making a quick turn toward high-end rentals. Instead, developers might think about diversifying their portfolios with more pricey rental properties — an extension of the strategies shared in our Quadrant Approach to Commercial Real Estate Investing — by adding a potential tier of high-wage earners to your overall high return real estate investment strategy.
What the Future Holds
Rich renters are no different, and they will influence the rental market in ways that could affect future investments. Developers are only responding to the needs of their new high-income tenants and will work harder to provide higher fancy amenities, bigger footprints, and product for those that can still afford to buy but chose now more than ever to just rent.
For investors and professionals, it is important to be aware of this transformation. It is only by paying attention to trends such as this – the millionaire renter trend — that you can set your investment strategy optimally and take advantage of profitable opportunities.
For the current trends in real estate, also read our top posts on U.S. Real Estate Market Outlook for 2024 and AI’s Impact on Healthcare Real Estate.
Conclusion
The real estate terrain is changing and millionaire renters are big players in that transformation. As the cost of home ownership continues to rise, — especially in markets where homes are already listed at several million dollars— more and more deep-pocketed people are turning to the security and flexibility that renting affords.
An increasing number of Gen-Zers are out renting their own upscale accommodations, and by servicing that desire for a nicer place to live you will be coming in at the forefront of the future.
To learn more on this trend as well as how you can benefit with your investments, dive into our strategic approach to commercial real estate investing or reach out to us make sure we at Ironsides Group are helping clients navigate these changes.
Learn more about our range of projects, and how they meet the needs of luxury renters. For personal questions, reach out to our CEO and founder himself, Andre Granello.