Lease vs. Buy Quandary Intensifies
The pandemic has changed the cost-benefit analysis for many renters-by-choice.
Residents of market-rate apartments are typically renters by choice, and many have the financial wherewithal to own a home. So the question everyone is asking is: “Will the pandemic drive these residents to buy homes as a way to gain more control over their living environments, or will they stay in their apartments because renting offers flexibility during a shaky economy?”
Paula Munger, assistant vice president of research for the National Apartment Association, said she foresees both. “Older Millennial renters were already breaking into the for-sale market. … That will continue.”
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And mortgage rates are at all-time lows. “A starter home is going to be cheaper than renting, and particularly high-end rentals, in some markets,” Munger continued.
5 Thousand Town by Arium is a rental property in the heart of St. John’s Town Center in Jacksonville, Fla. Arium is a CARROLL company. Photo courtesy of CARROLL
On the flip side, Munger added, market conditions favor renting as well. “RealPage (and others) have been reporting high rates of renewals, and our owner/operators tell us they are doing a lot more month-to-month leases, which is a sure sign of uncertainty.”
Also, many owners are not increasing rents on renewals, she said. “You can see why many people are staying put.”
For his part, Patrick Carroll, founder & CEO of CARROLL, sees homeownership falling. “A lot of people are skittish right now,” he said, adding that many will have a harder time getting mortgages.
The issue is not just renting vs. owning for Carroll. It’s also downtowns vs. suburbs. Due to the coronavirus, amenities usually associated with living in urban areas—such as restaurants, cultural events and music venues—for the time being “will no longer be in play.”
“The shift to working from home has been largely successful,” Carroll noted, and because working from home essentially changes where jobs are, suburban and secondary/tertiary markets will benefit.
He expects that his company will do less urban infill investing and focus more on their existing emphasis: suburban development. In addition, he’s considering an expansion into single-family rentals, especially if the company could enter that market at scale—10,000 to 15,000 units.
Sector Insights rotates among market rate/luxury housing, workforce housing, low-income housing, student housing, senior housing and mixed-use.
