The increasingly high cost of homeownership is driving apartment demand for some large multifamily owners, leading to record-low turnover in renters leaving to buy houses.
The residential market has shifted so much that major U.S. apartment landlords say the cost of owning a home compared to renting is the greatest they've ever recorded. That difference has begun affecting consumer housing preferences, bringing about what multifamily investment firm Knightvest Capital calls a fundamental shift in how renters think about homebuying.
“For many, renting is no longer a temporary stop but a preferred, long-term lifestyle choice that offers flexibility and community — something we expect to continue shaping the market in the coming years,” David Moore, Knightvest’s founder and CEO, said in a statement.
That's what renters are telling multifamily lenders and investors. Roughly one-third of all tenants have decided to forgo homeownership altogether, while half view renting as a long-term choice, and fewer renters say they'd buy a home even if mortgage rates — near 6.8% — fall, according to a new Knightvest survey. A similar poll this year from mortgage giant Fannie Mae found about 33% of apartment tenants consider themselves permanent renters by choice or circumstance, while CoStar shows apartment demand hit a three-year high.
These new attitudes toward homeownership have bolstered demand at some of the largest U.S. apartment owners, including AvalonBay Communities, Mid-America Apartment Communities and Equity Residential.
AvalonBay Chief Operating Officer Sean Breslin said this month that increases in home values along with stubbornly high mortgage rates have pushed the gap between homeownership and renting to "the widest we've ever seen."
He added that "turnover continues to trend well below historical norms," on the company's third-quarter earnings call. That's "driven in part by a substantially lower volume of move-outs to purchasing a home in our established regions which remains at record lows," he said.
AvalonBay, in the process of rebalancing its portfolio away from slower-growing coastal markets to areas in the Sun Belt, estimates monthly homeownership costs in its coastal markets have been $2,100 more expensive than renting for most of 2024, more than double the estimates from 2022. The result has been higher occupancy rates and a roughly 7% turnover rate from tenants leaving to buy homes. Long-term averages for homebuyer turnover at the company have run between 16% and 17%, according to Breslin.
Nationally, the median house price grew 3.1% to $418,700 in the third quarter compared to a year ago, according to data from the National Association of Realtors.
To be clear, not all apartment renters are souring on homeownership. Sales of existing single-family homes and condominiums in October rose nearly 3% from a year earlier, marking the first annual increase in more than three years, according to the NAR. And two-thirds of renters told Fannie Mae and Knightvest they aspire to own a home.
Tenants still staying
Even so, at Tennessee-based MAA with properties stretching across the Sun Belt, the significant cost of home ownership relative to renting pushed the proportion of residents moving out to buy homes down to 12.4% in the first quarter of this year, the lowest rate ever recorded by the company. By the third quarter, turnover to homebuying had declined even further to 11.5%, leading to record levels of resident retention and strong lease renewal performance.
"As an attractive, more affordable alternative to much of the higher-priced new multifamily supply being delivered as well as the available single-family housing options, our residents are choosing to stay with us longer," Brad Hill, MAA's chief investment officer said on the company's third-quarter earnings call.
Likewise, Equity Residential, another large multifamily real estate investment trust concentrated in major coastal markets, recorded the lowest residential turnover rate in the company's history in the third quarter.
"Move-outs to buy homes remained extraordinarily low and renewal rate achieved was strong across most markets," Michael Manelis, chief operating officer at Equity Residential, said on the company's earnings call.
The effect of these low turnover rates has been showing up in demand metrics that have driven down vacancy rates.
An analysis from CoStar’s national director of multifamily analytics, Jay Lybik, found multifamily demand in the third quarter expanded at its highest rate since 2021. Move-ins outpaced move-outs during that time by 176,000 units.
Over the first three quarters of 2024, demand for rental apartments surpassed 2023's total by more than 100,000 units, Lybik said. As a result, the vacancy rate declined for the first time in three years, dropping 10 basis points to 7.8% at the end of the third quarter.
Reasons to rent
The savings and convenience of renting compared to homeownership is a major motivation for deliberate renters. In Knightvest's survey, 63% of renters cited the high price of homeownership as a main driver of their decision — up from 41% in 2023.
Another 59% said lower maintenance and repair responsibilities were a main factor, while 34% named the flexibility to relocate as influencing their housing choices.
What's more, 48% of the more than 2,500 renters in the United States surveyed online in September said renting was a choice rather than a necessity, and 42% said they view renting as a long-term solution they expect to last longer than five years.
“As renters continue to prefer a long-term apartment community lifestyle choice rather than a steppingstone to homeownership, the multifamily market must continue to adapt,” Daniel Ebner, president at Knightvest Residential, said in a statement.
"Fostering a sense of community while providing exceptional service will be the keys to attracting and retaining renters that stay longer,” he added.