A growing number of higher-earning millennials are driving the burgeoning lifestyle renting market, as many would-be buyers are bowing out of the residential real estate market.

The share of rental applications for renters earning more than $50,000 is at a five-year high of 39%, according to new research from RentCafe, and rental applicants are making an average of 10% more this year than last year.

“Lifestyle renters have above-average incomes that would allow them to buy in a less competitive market,” RentCafe’s Alexandra Ciuntu says. “Renting with a bigger budget allows them to live in amenity-rich, higher-quality apartments.”

The proportion of higher-earning millennial applicants was rising slowly through 2020, but the number spiked significantly in 2021, when earners over $50,000 accounted for 43% of all lease applications by the segment. About 42% of millennial renters applied to live in upscale buildings this year.

For many millennials, buyingespecially in the current marketjust doesn’t make sense. 

“Housing prices have been rising for years, making it more difficult for renters to transition into homeownership,” Noah Echols, Vice President of Marketing at Carroll, told RentCafe“Student loan debt has also increased, making it difficult for young people to save for a down payment.” 

Those renters are also increasingly looking to larger pads in smaller cities, which RentCafe defines as those with a population of 300,000 or under. Small cities made up 43 of the 50 cities with the highest increases in rental applications among the high-earning millennial segment.

Developers of single-family rentals are betting big on millennials: demand for SFRs is driving growth in infill neighborhoods across the US, Dallas Tanner, president and CEO of Invitation Homes said on a recent earnings call.

“We believe that the operating fundamentals for our business remain fantastic and that the environment for growth remains favorable with our opportunities to creatively deploy new capital among the best we’ve seen in recent years,” Tanner said, noting that Invitation’s average occupancy is at “historically high levels.”

The reason? Demographics.

“I’ve spoken previously about the population surge of millennials and how we expect many within this cohort to transition into single family homes over time. They desire more space for raising a family in a room for a home office, and they want better access to good schools, jobs, and amenities,” he said. “They also value the convenience of a worry-free subscription-based lifestyle.”

Institutional investors have allocated more than $10 billion to the SFR sector over the last few years, with the Southwest and Southeast leading the way in new development.