Multifamily trend: Renters starting to choose suburbs over city centers

People are moving back to the city in droves—or at least that’s what we’ve been told for the last several years. Cities have been seen as a haven for the young and well-educated—particularly cities that are loaded with appealing amenities and job opportunities. But have urban areas become too popular for their own good?

Renters Choosing Suburbs Over Cities

A new study by RentCafe uncovered an unfolding trend of renters choosing suburbs over cities. In 19 of the 20 largest American metro areas, the number of suburban renters increased faster than the number of urban renters between 2011 and 2015.

The trend is particular pronounced in four markets: Atlanta, St. Louis, Riverside, and Boston, where the city’s suburbs gained three times more renters than their urban areas. In Atlanta, for example, the suburban areas gained 26% more renter households during the study period compared to its urban areas, which experienced just 10% growth.

Philadelphia was the only metro area that experienced more renter growth in its urban areas. Nearly 15,000 new renter households moved to the city, compared to just over 5100 renter households that moved to Philadelphia’s suburbs.

In terms of the most explosive renter growth, the suburbs of Riverside (+60,500), Chicago (+57,500), Miami (+56,800), Dallas (+52,600), and Atlanta (+52,300) added the most new renter households.

What’s Driving Suburban Rental Growth?

High housing costs are the most likely cause of renters choosing suburbs over cities. In all but two of the metro areas that were studied, rents were lower in the suburbs by an average of 11%. In some markets, that’s equivalent to a full month’s rent.

Living downtown is particularly expensive in New York City, where the average apartment costs $3269 per month. Meanwhile, rent in New York City’s suburban areas averages just $1669 per month—representing a drastic difference for renters in the NY metro area.

The gap isn’t as stark in Boston, but it’s still evident: Urban apartments rent for an average of $2642 per month, compared to just $1862 per month in Boston’s suburbs.

Price isn’t the only cause of renters choosing suburbs over cities, however. Not only are suburban areas less expensive, but they also tend to have better schools than their inner city counterparts. In addition, renters typically get more bang for their buck in the suburbs. The farther an apartment is from the city center, the more likely it is to have more square footage, outdoor space, and available parking.

The RentCafe study noted another potential cause of renters choosing suburbs over cities: Housing diversity.

“Another ‘pro’ in the suburban column is that the suburbs now offer a wider range of rental options, aside from low and mid-level apartments. Many suburban developers have been raising the bar by building higher-end suburban garden-style apartment communities, with luxury features rivaling those you would more likely see in city high-rises.”

Meanwhile, local officials in suburban areas around the country have started reinvesting in their downtown areas to capture this growth. Priced out of urban markets, many residents still look for easy access to urban areas with an array of amenities—even if it’s on a smaller scale than cities typically offer. Those that have transit access are poised to do especially well, as this makes commuting into the city for work significantly easier.

New Construction Slow to Take Off in the Suburbs

Although suburban apartments tend to be more affordable than those in urban areas, the lack of new construction in suburban areas could cause an uptick in prices.

Of the 20 metro areas studied by RentCafe, approximately 300,000 new units were built in urban areas between 2011 and 2015, while only 180,000 were added to suburban markets. Overall, city apartment construction was up 224% during this period, compared to 146% in suburban areas. Only Miami and Philadelphia saw more apartment construction in their suburban markets than in those downtown.

Some have speculated that urban apartment markets are becoming over-saturated, particularly with luxury units. It remains to be seen whether developers will shift their focus to the suburbs in the near future. However, even if they do, a massive influx of new development is unlikely to happen overnight. Suburban areas, which tend to be quieter and more residential in nature, often have long and arduous processes before a multifamily project is permitted.

In the meantime, a lack of supply—particularly given the trend of renters choosing suburbs over cities—could cause suburban apartment prices to rise.

Take Boston for example. In the Boston area, suburban rental prices rose 4.4% between March 2016 and March 2017, with the average rental price topping out at $2370 per month. Rents in Boston’s urban neighborhoods rose just 1.6% during that same time.

Until urban areas become more affordable in comparison with suburban locations, however, we suspect the trend of renters choosing suburbs over cities will continue to grow.

If you liked this post on renters choosing suburbs over cities, we bet you’ll like our series on micro-apartments. Read Parts I & II now: Are Micro-Apartments the Next Big Thing? and Micro-Apartments Could Solve the Affordable Housing Crisis—If We Let Them.