Renting the American Dream

Apartment complexes are sprouting faster than spring across Raleigh, and rents are more than a mortgage.

Nothing against homebuying (that’s booming too), but an increasing number of us are opting to rent.

Trulia reports the share of U.S. households that rent increased from 36 percent in 2006 to 41 percent in 2014—that’s nearing half of us. Renting increased in all 50 of the cities Trulia looked at.

What’s behind the growth—from new complexes in Cameron Village and Midtown downtown.

There are three things, according to N.C. State economist Michael Walden: lack of building in years prior, Millennials, and Raleigh’s status as one of the nation’s darlings.

“The region has one of the best economies in the country,” says Walden. “Anchored by our universities and tech sector, Raleigh is on everyone’s list of fast growth for the decades ahead. Wake County is expected to double in population by 2050. Anticipation of this growth has sparked residential building, especially after the lack of new construction during the great recession.

“Raleigh is also a young city, pulling Millennials to the universities for an education and then staying for jobs,” Walden continues. “Millennials have largely shunned owing single family residences, due to remembering losses suffered by homeowners during the recession, not having children that need a single family dwelling and wanting to minimize upkeep associated with owning a home. The apartment/condo market has responded.”

These high end units—close to shopping and restaurants—aren’t cheap.

According to MPF Research, which studied apartment data in 100 U.S. metro markets, the average monthly rent in Raleigh increased between 4 and 5 percent from 2014 to 2015—moderate compared to Denver (10 percent), Austin (7 percent) and Charlotte (6 percent).

For perspective, the average annual rent in New York City increased 2.1 percent in the same period. So smaller cities nationwide are seeing higher rent increases, although average monthly rents remain low in comparison.

The median monthly rent during the 4th quarter of 2015 for attached housing listed and sold in Triangle MLS was $1,295, an 8 percent increase compared to the same time a year before and a 44 percent increase compared to the same period in 2006, says Stacey Anfindsen, an appraiser with Birch Appraisal Group and editor of the Triangle Area Residential Realty report.

But Walden says the rental boom won’t last forever.

“There are two warnings to developers,” he says. “One is the economy is still cyclical, and at some point there will likely be over-building and a drop in rents before the market stabilizes. This is unavoidable. Economies and markets go through booms and busts.

“The other warning is about the living preferences of Millennials,” Walden continues. “Now they want no-maintenance small units close to amenities, like restaurants, shops and entertainment. But what happens when they marry or partner and have children? Past experience suggests they will want more living space and will likely move to the suburbs. A recent CNBC article by Diana Olick says this is already occurring. So developers need to be cautious, even in optimistic times.”

Anecdotally, we know affluent professionals of all ages—especially empty-nesters—are migrating to rentals, too, wanting to shed the responsibilities of yard work, upkeep and longer commutes, preferring the trade what used to be the status symbol of homeownership for carefree living.