In the Los Angeles metropolitan area, where home prices are close to an all-time high, even those making six-figure incomes may be struggling to enter the real estate market.
According to new report from Apartment List, one-quarter of high-income households rented in 2008. By 2017, that share had jumped to 30 percent, and the LA area had more than 450,000 high-income renters.
Only two other metropolitan areas—San Francisco and San Jose—have a larger percentage of high-income residents who rent (and a lower percentage of high-income homeowners).
The report documents a nationwide increase in the number of high-income households (those making over $100,000 annually, adjusted for inflation) that rent, rather than own, their homes.
Between 2008 and 2017, the number of high-income renters rose 33 percent in the LA area. That’s far less than in other cities, such as Denver and Austin, where the number of $100,000-earning renters shot up nearly 150 percent.
But part of the reason LA lags behind other U.S. cities is that wealthier residents here have signed leases rather than mortgage agreements since long before the recession.
As the report notes, the rising number of high-income renters may help explain why housing developers have favored amenity-rich high-rises over more modestly priced rental projects in recent years.
Warnock warns that “ this trend will likely lead to greater inequality within the rental market.” With Los Angeles and other cities severely lacking affordable housing, “high earners are increasingly competing with everyone else for finite city space,” he says.
A rise in high-income buyers isn’t just a natural byproduct of a recovering economy. Between 2008 and 2017, the number of high-income households in the Los Angeles area grew just under 11 percent, meaning that renter growth among those making six-figure salaries is three times faster than overall growth of this income category.
The report attributes some of this to development of luxury apartment complexes in city centers that appeal to young professionals and well-heeled urbanites. But other high-income renters may not see buying as a viable option in Los Angeles.
Last year, a separate report from Attom Data Solutions found that making mortgage payments on a median-priced home in LA County would require a household income of $167,182, well above the $100,000 classified as “high-income” in the Apartment List report.
Since 2008, “mortgage credit requirements have become more stringent, incomes have risen, but at a slower rate than home prices, and particularly for younger Americans, student-loan debt is making it difficult to save for a down payment,” writes Apartment List researcher Rob Warnock.
Stowing away funds for a down payment can be especially tricky in Los Angeles County, where the median home price was $581,500 in December. That means a traditional 20 percent down payment would be $116,300—a nearly impossible amount to set aside without a very hefty salary.
- How much affordable housing does LA need? [Curbed LA]
- In LA, home affordability approaching an all-time low [Curbed LA]
- Here’s how much it costs to rent in LA right now [Curbed LA]