Renters Flock to Cities While Buyers Turn to the Outskirts

The geography of American rental demand is being reshaped by forces that go well beyond simple preference, according to experts at Johns Burns Real Estate Consulting. As affordability challenges and economic uncertainty persist, more affluent tenants are increasingly choosing to rent within prime metropolitan markets, while ownership opportunities have shifted farther out into remote zones where prices remain accessible.

Zach Burns, principal at Johns Burns Real Estate Consulting, highlighted how the current environment is driving this shift in a recent podcast by the company. “We might continue to see a slowing employment market. We might continue to see fewer and fewer households being formed, perhaps because of affordability, perhaps because of economic uncertainty,” he explained. These headwinds are causing the rental market to capture a larger share of household formation. “I do expect the rental market to outperform the for sale market, but I don’t think we’re off to the races,” Burns said. “I don’t think we’ll see 2021 growth. In fact, I don’t think we’ll see that ever. I think that was a really unique combination of factors that led to astronomic rent growth.”

The driving force behind strong urban rental demand is the widening gap between rental costs and the costs of homeownership. “That cost to own versus rent gap is near historic highs in most markets,” said Burns. This has led many tenants who would otherwise transition to homeownership to remain renters, especially in desirable inner metro locations. According to Burns, “A lot of folks who are moving out of apartments aren’t necessarily going into the home ownership world, the for sale side of things. They’re now transitioning into single family rentals or built-to-rent product.”