Are high earners finally shifting away from renting? Not so fast, brokers say

A study found a sudden county-wide drop in well-to-do renters, but luxury brokers say apartment demand has never been stronger
By Alex Nitkin | May 02, 2019 02:00PM

From left: Luxury Living CEO Aaron Galvin, Downtown Realty Company managing broker Ben Creamer, and Sarah Duda, deputy director of the Institute for Housing Studies at DePaul University, with 111 West Maple Street

From left: Luxury Living CEO Aaron Galvin, Downtown Realty Company managing broker Ben Creamer, and Sarah Duda, deputy director of the Institute for Housing Studies at DePaul University, with 111 West Maple Street

The DePaul University Institute for Housing Studies’ recent State of Rental Housing report confirmed bleak, if unsurprising, trends from the past several years. It showed yet more evidence of Cook County’s rapidly-falling stock of apartments that are affordable to middle- and low-income renters — a trend driven in large part by a purge of walk-up rental buildings.

But it also found a decline in high-income renters, a sharp reversal from previous years and an apparent rebuke of everything real estate pros say they’ve noticed about the city’s demographic and economic shifts.

For the first time in at least a decade, the county saw a decline in the number of renter households that earn more than 120 percent of area median income, or about $82,000. The number fell from 187,230 in 2016 to 170,381 in 2017, the last year analyzed, a decline of roughly 9 percent.

The number of high-income renters is still far above where it was before the 2008 housing crisis, which drove tens of thousands of Chicago-area residents all across the income spectrum away from homeownership. But the 2017 data could show that trend is finally starting to turn, with a slight increase in the number of owner-occupied households across the county. That figure had steadily dropped from 2007 to 2015.

“We’re seeing a shift in the demographic groups that have been key drivers of rental demand during the recovery, which is high-income renters and millennials,” said Sarah Duda, deputy director of the institute and the study’s lead author. “Higher-income households have a lot more choice, and they’re more mobile, so they may be taking that opportunity to switch to homeownership.”

The report used Census data and other public records to calculate renter demand. In addition to the reduction in high-income renters, it also showed a decline in renters age 55 and younger, with an especially sharp drop in the 25-34 age group.

Duda cautioned against drawing too many conclusions from a single year’s results, saying the loss of younger and well-to-do renters would only “raise an alert” if it spills over into future years.

But the shift “doesn’t surprise” Charlton Hamer, senior vice president of affordable housing developer The Habitat Companies.

“Going back to the late aughts, we’ve seen this increase in the younger, educated population graduating from Big Ten schools and then gravitating toward Chicago,” Hamer said. “But as that group gets older, a lot of them are either buying infill single-family homes [in the city] or moving to inner-ring suburbs.”

Another factor could be that younger well-to-do renters are simply doubling up and sharing higher-end apartments, reducing the number of rental households even while the number of actual renters continues to rise, according to Aaron Galvin, CEO of Luxury Living, which handles leasing for a number of high-end properties.

“We’re seeing more couples renting a lot of the one-bedrooms in these newer buildings, which tend to have smaller unit sizes,” Galvin said. “So these apartments are getting smaller, but still commanding a high price point.”

And if the city is seeing a dip in demand among big-spending renters, no one told the landlords who keep hiking rents, Galvin added. Rents are approaching $4 per square foot, and one-bedrooms are event renting for $3,000 in some newer buildings, after four years in which a combined 20,000 high-end apartments were added near the city core, according to data compiled by Luxury Living.

Nearly half of Luxury Living’s clients come from outside the city, mirroring a heavy influx of coastal residents being drawn Downtown by high-salary jobs.

Other luxury apartment brokers are seeing demand grow, too. Downtown Apartment Company, the rental division of Downtown Realty Company, saw a 22 percent hike in closings during the first quarter this year compared to 2018, managing broker Ben Creamer said. That followed a 13 percent rise between 2017 and 2018.

“We’re maybe seeing an uptick on the buyer side with some older millennials, but I think rental demand is as strong as it’s ever been,” Creamer said.

He added the growing glut of high-end apartments, especially around the South Loop with new developments like Essex on the Park and NEMA Chicago, is pushing luxury management companies and offer generous concessions in some parts of the city.

The incentives may be strong enough to keep a major slice of well-do-to residents out of the buying market.

And luxury resi brokers like Janice Corley, owner of RE/MAX Premier, have noticed. The suddenly wide availability of high-rise rentals is luring away many older spenders who would otherwise be looking for houses, Corley said.

“It seems like baby boomers all decided to sell their [suburban] homes at the same time” and flock to ritzy Downtown apartments, Corley said. “And now that millennials are getting married and having kids, they’re not replacing the boomers. They’re staying in the city.”