Millenials, Gen Z in D.C. opt for luxury rentals over buying

In D.C., high interest rates and underproduction of new inventory have raised home prices above what many residents can afford. That problem is likely to worsen given that Boeing and Amazon are moving their headquarters to Northern Virginia, local real estate brokers say. As potential buyers are priced out of the market and forced to rent, multifamily developers and landlords are the real winners. And with renters paying an average of $3,500 monthly for an 800-square-foot apartment, amenities are the driving force behind a renter’s choice.

Big apartment complexes with pools, gyms and even bowling alleys are making the younger generation rethink homeownership altogether. Some believe they will never own a house, but that idea often comes from a misunderstanding of the first-time buying process, said Adam Belasco, a realtor in the D.C., Maryland and Virginia area (referred to locally as DMV). 

Meanwhile, median sale prices in D.C. are up 2.7% year-over-year at $727,000 according to Redfin’s June housing market trend report. Home affordability stands at 47.1% compared to rent affordability at 26.9%, Attom’s 2022 affordability report finds. 

Live-work-play all day
Compared with the rest of the country, D.C. ranks fourth in underproduction of new housing by metropolitan area, according to a report by the member network nonprofit organization Up For Growth, which conducts research aimed at resolving the housing shortage. The city’s average rent of $3,500 per month is 1.7 times the national average and house prices are 1.9 times higher in 2022. 

At the same time, D.C. leads in the development of live-work-play buildings specifically — commercial, mixed-use properties that combine residential units and retail space. It is the fourth largest multifamily market in the United States, with 566,750 existing units and 257,122 more in development, according to an analysis by Yardi. Demand for multifamily housing has risen, with 19,410 units absorbed over the past twelve months, up from 12,478 last year. Over 85% of multifamily buildings in the area offer luxury apartments with new amenities, at an average monthly rent of $2,335. 

“The demographics pushing the live-work-play model are younger millennials, somew. between 28 to 40. They are looking for more technology and different amenities before renting longer now because of the lack of housing supply. Ergo, some people are changing their attitudes, asking ‘do I really want to own a house?'” said Doug Ressler, business intelligence manager at Yardi Matrix. 

Millennials and Gen Z are less likely to think homeownership is important to their success, with only 34% of the former and 23% of the latter saying homeownership is extremely important in a survey by Apartment List. Meanwhile, these generations are also more likely to say it is extremely difficult for their family to afford a new house. 

High prices and stagnant wages have also disillusioned many young adults, believing they will never own a home and are destined to rent forever. But much of that comes down to misconceptions and first-time homebuyers not fully understanding the process, according to Belasco. 

“A lot of clients think, oh, you have to put 20% down on the house to be able to purchase something, which is not true. If you’re a first-time homebuyer, all you need is three and a half percent, which is a significant difference.”

A survey recently found that 42% of millennials thought that home purchases required a minimum downpayment of 20%, according to Radian. 

Recent college graduates are looking at a scorching housing market with interest rates likely to creep up higher than they already have since the start of 2022. They might also see an investment so large as restrictive. 

D.C. is a transitional market, w. many do government-related work for a handful of years before moving on to the suburbs or another metro. That scenario makes rentals much more appealing for young people while they figure out how long they plan on staying in the area before purchasing, said D.C. and Northern Virginia realtor Brian Block. 

“A lot of people come . for work, make some money, gain some experience working for the government for a few years and then go elsew.. I always advise my clients that if they’re not looking to be . more than four or five years; it makes sense just to just to rent because you might not make back that money back and appreciation during that short time period,” he said. 

While multifamily buildings can offer flexibility and convenience, ultimately, renters are paying somebody else’s mortgage.

Low wage growth and the high prices of luxury rental buildings have also created a “missing households” problem, in which adults choose to share a single household because they cannot afford to live independently. In the capital, 60% of housing underproduction is attributed to missing households and a lack of rental properties set at the right price, according to the chief executive officer of Up for Growth, Mike Kingsella. 

“From a production perspective, D.C. has been performing better than some of its peer metros across the country, but w. we’ve seen sort of the opposite side of that dynamic is in missing household formation, and I think that is w. you see a lot more folks having to take on roommates in order to afford the rent,” Kingsella said. 

At high prices, renters then look to ensure the apartment they choose gets the most bang for their buck. Apartment choice may be determined by the amenities the building has, whether t. are restaurants nearby or maid services in the building. Multifamily managers and leasing offices try to get renters in by giving a free month or two as a concession on rent over 12 months. 

Increased local competition for housing 
The DMV area is expected to undergo more changes as Amazon and Boeing relocate their headquarters to Northern Virginia, bringing more white-collar jobs to the area. Already, rumors abound that Amazon has bought single-family residences in Northern Virginia for their employees. The company did not respond to inquiries about these alleged home purchases. 

As D.C. grows and more jobs are created in the region, the problem the housing market faces is not just building more but building the right types of houses that are affordable for its inhabitants.

“With what we’re seeing in terms of the very high percentage of underproduction attributable to missing households that speaks to needing a broader array of housing,” Kingsella said. “And more choice and particularly more housing options that are at the more attainable end of the income spectrum, particularly to meet the needs of the workforce and low-income households.”