Rents are rising at double-digit rates across much of Virginia. One key reason rents have been rising fast is because more higher-income households are in the market. Many individuals and families have been sidelined from homeownership as a result of low inventory and intense competition in the market. These prospective tenants with higher incomes can be aggressive in their search for a rental home, which can drive rents higher. Renters with more moderate incomes are having a harder time finding a rental home or apartment as the market continues to heat up.
In 2020, according to the most recent data from the Census Bureau, about 18% of Virginia households with incomes of $100,000 or more were renters. By comparison, about 43% of those with incomes under $100,000 rented their homes. But as the for-sale market heated up over the past two years, higher-income households—many who wanted to buy a home—were remaining in the rental market. And in some instances, the rental market began to look just as competitive as the for-sale market.
There are many reasons why households with higher incomes would choose to rent rather than buy a home. Homes in multifamily apartment buildings can offer amenities such as pools or fitness centers. Renting means no mowing the lawn or fixing appliances—maintenance costs are largely the responsibility of the landlord. And renting can be less expensive than buying, particularly in the short-term when renters do not have to come up with a large down payment. (Over the longer term, however, a fixed-rate mortgage can make owning not only more affordable but make monthly payments more predictable.)
Recently, more higher-income households are becoming renters because they either can’t find a home to purchase or because rising home prices have put homeownership out of reach. There are also young workers who are moving out of their parents’ homes or out of roommate situations. Some of these young workers—particularly those in professional and technical services occupations—have had job and income stability during the pandemic and can pay relatively high rents. The work-from-home trend during the pandemic has also led some individuals and families to move to new locations, often renting first, and putting additional pressure on the market.
The result of more renters in the market has been higher rents. A recent survey conducted by Virginia REALTORS® found that nearly three quarters of property managers in the commonwealth were receiving multiple applications for rental units. Nearly one in five said that applicants were offering above advertised rents to secure the property.
Conditions in the for-sale market may cool a bit as a result of rising mortgage rates and growing affordability challenges. However, the rental market will remain very competitive in 2022. More supply will help, as new multifamily construction has increased in some markets, but demand for rental housing will still outpace supply.