The American dream is changing fast. A dream that used to include owning a home with a white picket fence is now likely to include renting an apartment.
A decade ago, homeownership rates were soaring. In late 2004, the homeownership rate reached a high of 69.2 percent and rental vacancy rates were as high as 10.2 percent.1 The 2007 financial crisis changed all of that. People lost their homes, income stagnated, and in mid-2016, the homeownership rate hit an all-time low of 62.9 percent and rental vacancies dropped to 7.0 percent as people switched to apartments in droves.1
This is the new “American Dream,” and it shows no sign of slowing down. In fact, renter households are expected to increase 24 percent by 2030 and the homeownership rate is projected to drop to just 61 percent due to the changing lifestyle choices and financial situations of Millennials, Baby Boomers, and the American workforce.2
Where are all of these new renters living?
As the number of renters across the U.S. grows, you may assume that they’re flocking to the hearts of major cities. But you’d be wrong. According to a recent Axiometrics study that tracks rent growth, there has been more growth in the suburban areas outside of these cities than there has been in the downtown areas.
Why are the suburbs booming?
The most obvious reason for renters moving to the “burbs” is affordability. In 2014, renters could afford less than half of the apartments available in metro areas nationwide.3 With the median household income at $56,500, spending 30 percent of income on rent means a budget of $1,400.3,4 That won’t get you much in New York or Los Angeles. In fact, the average cost for a two-bedroom apartment in 11 of America’s 15 largest cities is higher than $1,400.5
Beyond affordability, suburban towns and developers are starting to cater to people looking for a more walkable, dense, urban-like community.6 According to a report from the Urban Land Institute, suburbs are trying to “bring the best of city living to more affordable areas” and it’s drawing in Millennials and downsizing Baby Boomers, making suburbs denser and more diverse than ever before.6
Blurring the lines between cities and suburbs in the future
As the homeownership rate continues to fall over the next 10-15 years and more renters move out of city limits, suburbs may change drastically. Gone will be the stereotypical cookie-cutter houses, sleepy neighborhoods, and families of four. Based on current development trends and renter preferences, the new suburbs will be bustling with vibrant town centers that cater to changing lifestyles and a diverse suburban population.7 You’ll potentially see Millennials, Baby Boomers, and workforce families all living in the same mixed-use, multifamily apartment complexes. Soon the traditional suburbs may not look all that different from today’s active and lively cities.