Millionaire renters: a growing trend

In major US cities, wealthy households are making up a growing share of renters. Is the trend likely to continue?

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Jersey City's millionaires in 2015 were all homeowners. That's not surprising, is it?

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Historically, a single-family house in a Jersey City neighborhood like Bergen-Lafayette, where 19th-century Victorians mixed with brownstones, was approximately $230,000 — very affordable for the rich, even if the house needed lots of work. Just a stone's throw away from Liberty State Park and the stunning Manhattan skyline, the price was about $230,000.

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Compared to homes in more outlying neighborhoods, condos downtown Jersey City, according to reporting at the time, cost three times more than homes in Manhattan or Brooklyn. Even a millionaire wouldn't sweat the price of downtown condos.

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The rental marketing software company RentCafe analyzed US Census Bureau data from five years later and found 104 millionaires in Jersey City renting. Over this five-year period, Washington, DC, as well as New Jersey, saw a threefold increase in millionaire renters. An astonishing 1,629% of this increase occurred in San Francisco.

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There are still only 294 millionaire leases in San Francisco, despite the huge percentage leap. These millionaire renters are only the tip of the iceberg when it comes to their emergence on both coasts over this period.

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Increasing rents and incomes for renters

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Households with incomes greater than $150,000

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Renting rather than buying became increasingly popular with affluent households in the US over a short period of time. Between 2015 and 2020, the number of renter households earning more than $150,000 per year more than doubled in several major cities, including Boston, Chicago, and Seattle. In secondary markets such as Dallas, Phoenix, and Charlotte, North Carolina, affluent renters made up a significant portion of the hottest markets by 2020. 

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A RentCafe study found that this high-income band of renters grew by 82% nationwide. Among the fastest-growing renter categories, affluent households are the most common. Renter classes are catching up with San Francisco in cities around the country.

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A variety of income segments of renters grew as well, including those with more modest incomes. There was, however, a profound 11% drop in the number of renters earning less than $50,000.

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Renter households earning over $150,000 are increasing in the following US cities

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What explains this rising tide? Consumer preferences are the key, according to Trade Algo research. A high-rise or mid-rise building with concierge services and amenities nearby is preferred by people because of its convenience and security. Many well-to-do renters want to live in the city, so they won't consider homes further away from city centers that they can afford. Apartment rentals also allow you to move in and out, while condos restrict your freedom of movement.

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The majority of renters would purchase if they had the choice. Yet, almost everywhere, the number of homes built has not kept up with the number of people seeking to buy them. Therefore, millennial renters with higher salaries or dual-income households who found themselves financially capable of buying kept renting. As a result of the limited housing supply, home prices have increased and there has been an increase in all-cash purchases. In places where they'd like to live, even affluent households are locked out of homeownership.

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As a result of a pandemic spike and a decade of steady rent increases, rents are finally dropping. In the work-from-home era, people ditched their roommates or found larger apartments, and seasonality in rental markets has returned as people move once again for schools or jobs. 

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The most remarkable thing about the rise of millionaire renters was what happened at the other end of the income spectrum: the collapse of the low-income renter group. Poorer renters moved into family homes, resulting in an 11% drop in the number of renters earning less than $50,000. Increasing wages allowed them to climb the economic ladder. There is still a significant number of low-income households around. This shift in rental demographics has adversely affected poorer tenants since they have to compete with better-off renters for apartments in the best places (the ones with the best jobs, amenities, and locations). Millionaires with leases benefit from falling rents as well, as absurd as that might sound. Tenants who are left behind may never see rents fall far enough.