New data from the Harvard Joint Center for Housing Studies shows just how much well-off renters have changed the apartment market here and across the country.

 

More high-income residents are renting apartments in the Chicago area, driving a development boom at the high end of the market.

That’s pretty obvious to anyone walking around downtown Chicago, where developers are feverishly building fancy apartment towers that  cater to the well-off.  But  new data  from the Harvard Joint Center for Housing Studies backs up that conclusion, which also applies to the rest of the country.

High-income earners have typically owned their homes, but many, especially empty-nesters and young professionals without families, have embraced apartments since the recession, favoring the flexibility of renting over the burden of owning.

By 2018, households earning $75,000 or more accounted for 25.5 percent of the area’s renter households, up from 19.9 percent in 2010, according to the Harvard data.  

The real estate bust undermined the widespread belief that homes are a no-lose investment, turning some would-be buyers away from the for-sale market. Apartment developers have lured many of them with expensive buildings featuring condo-style finishes and amenities. The  prolonged construction boom  has produced new high-rises like  Essex on the Park  next to Grant Park and 727 West Madison in the West Loop, along with high-end suburban projects like  Atworth at Mellody Farm  in Vernon Hills.

Between 2008 and 2018, developers built 175,000 apartments in the Chicago area that rented for $1,400 per month or more, a 127 percent increase in supply, according to the Harvard data. By contrast, rising rents contributed to a 10.7 percent decline, to 720,000 units, in the number of Chicago-area apartments with monthly rents under $1,000.

It’s a national trend, and it’s not good news, according to the study, “America’s Rental Housing 2020.” Nationally, households with incomes of $75,000 and higher accounted for more than three-quarters of the growth in renters from 2010 to 2018.

“With higher-income households accounting for much of the growth in demand since 2010, new supply has been concentrated at the upper end of the market,” the report says. “These new units typically offer amenities, including locations in the core parts of metro areas, that put their rents out of reach for even middle-income households. Meanwhile, rising demand, constricted supply, and changes in the ownership and management of existing rental properties—particularly smaller apartment buildings—have helped to reduce the stock of low- and moderate-cost units.”

The good news is that renting here actually is more affordable these days, according to one key metric. Cost-burdened households—renters who spend 30 percent or more of their income on housing—represented 47.1 percent of all renters in the Chicago area in 2018, down from 53.3 percent in 2011 and 49.5 percent in 2006, the Harvard data shows. Nationally, 47.5 percent of renter households were cost burdened. 

 

Source: Crain’s Chicago Business Alby Gallun January 31st, 2020

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