High-Income Renter Pool Has Grown 33% in L.A.

The number of rental households earning more than six-figures in annual income is growing. According to a new report from Apartment List, high-income rental households grew by 33% in the last decade, showing that high-income earners are choosing to rent rather than buy a home. The reasons for this trend are potentially vast, and include affordability problems, scarcity of home product and a newfound cultural preference of renting over owning.

“Both “push” and “pull” factors are driving the growth of high-income renters,” Rob Warnock, research associate at Apartment List, tells GlobeSt.com. “Some high-earners are being pushed into the rental market simply because of the scarcity of affordable home-buying options. Others are being pulled or drawn into the rental market by the abundance of rental options that cater to whatever lifestyle they want to live. We have witnessed a boom in multi-family rentals for those who prefer density and centrality, alongside a boom in single-family rentals for those who prefer more space.”

The increase in high-income renters—especially to this level—has a significant impact on the rental market. It fuels the development of luxury housing, increases rental rates and changes the dynamics of the standard—or once standard—rental market. “The growth in high-earning renters is changing the composition of the rental market,” says Warnock. “We’re seeing developers react to this trend by brining online new multi-family supply that’s centrally located and geared towards the higher end of the market. Meanwhile, in supply-constrained markets where very little gets built, richer families are increasingly competing with everyone else for a limited set of places.”

Los Angeles’ high-income rental demographic trails behind other markets. In the US has a whole, the segment of high-income renters grew 48% in the last decade, while the total rental market grew 15%. Other markets have seen a much more dramatic increase in high-income renters. In Denver, for example, this market segment grew 146% since 2008; in Austin, it grew by 142%; and in Seattle, it grew 96%. Los Angeles, along with other major cities, didn’t make the list of the top 10 markets for high-income renter growth. “Many of the country’s largest cities are not at the top of the list,” explains Warnock. “This is due to the fact that in 2008, cities such as Los Angeles already had a large base of high-earners who were renting. So high-income renter growth is not as new of a phenomenon in LA as it is in places like Denver, where incomes and rental housing options have really taken off in the past ten years. Per the table below, in 2008 a quarter of high-income households in LA were already renting.”

On the other hand, the low-income rental segment has grown at a much slower rate. According to Warnock, low-income renters grew 4% in the last decade, while middle income renters grew 11%. “That being said, despite a higher rate of growth, high-income households today make up only 20% of the total renter population,” he says.

While this market segment has grown dramatically in the last decade, Warnock expects that growth to slow, particularly in the top markets, where housing affordability drove demand. In Los Angeles, however, affordability problems will likely keep high-income earners in rental units. “We would expect growth to cool off if there was an abundance of affordable homes in the places where high-earners want to live, so that they could substitute renting for owning,” he adds. “But in LA this is likely not the case; even for many households making six figures who want to purchase a home, homeownership will remain out of reach.”