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High-income Earners Consider Renting Chic Again
Over the past two years, households that earned $50,000 or more annually and had the means to join the ranks of home owners or continue owning the roofs over their heads represented the fastest growing segment of the rental market, according to the National Multi-Housing Council.
"These are people who could have bought but choose not to," NMHC's Kim Duty reported at the National Association of Real Estate Editors' annual conference late last month in New Orleans. "Their older, more affluent and better educated, but they choose renting for the lifestyle, not economic reasons."
As Duty sees it, "the pendulum is swinging back" to the early 1900s when apartment living was considered chic. "Changing demographics, evolving lifestyles, new public policy initiatives and changes in the apartment industry are all working together to increase apartment demand," she told the meeting.
Over the next decade, according to NMHC's research, the two fastest growing age groups are two of the most likely to select apartment housing people in their mid 20s and empty-nesters in their 50s.
After more than 20 years of declining numbers, the population in the traditional renting years (age 20-29) is expected to increase by 11 percent over the next decade. During the same period, moreover, the number of people in the 45 to 74-year-old age bracket will swell by 20 million, and these are folks who exhibit a much greater proclivity to rent than the counterparts in previous generations.
Duty, the apartment group's vice president of communications, also said the fastest growing portion of newly formed households going forward will be childless couples, singles living alone and unrelated households, all of whom have a higher propensity to rent than to buy.
She cited "three key reasons" these and other households choose to rent:
In addition, Duty said, many of today's apartments "look and feel more like single-family homes. They are larger, and they include finishes such as attached garages, built-in, pre-wired entertainment centers, private alarm systems, granite counter tops, oversized whirlpool tubs, gas fireplaces and more."
The NMHC also believes the 1997 Tax Act tilted the rent-versus-buy decision in favor of apartments. Now that the first $250,000 of capital gains ($500,000 for married couples filing jointly) is tax-free, more home owners are able to consider renting without being encumbered by a huge tax liability.
Indeed, the group's analysis indicates that apartment demand could increase by as much as 10 percent over the next several years due to this change in the tax law alone.
On the supply side, meanwhile, new interest in smart growth and infill development is "making it easier to get new apartment construction approved," Duty said, maintaining that apartments utilize existing infrastructure more efficiently that detached housing.
"Urban areas also realize that the lifestyle rental market is a key market to target in trying to recruit middle and upper-income households to return downtown," the industry spokesperson added.
Finally, in contrast to mom-and-pop apartment owners of yesteryear, most of today's landlords are large firms that are invested in the long-haul, not short-term tax benefits. And as a result, they have made obtaining and retaining residents "a highly professional endeavor."
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