There Are More Renters Than Homeowners in Wealthy States—Why?

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If you’re looking to snag a cheap rental property in one of America’s less affluent states, like West Virginia, Mississippi, or Alabama, you might have a hard time getting it rented. That’s because, according to Federal Reserve and U.S. Census Bureau data, states with lower incomes per capita tended to have the highest homeownership rates. 

As strange as that might sound, it largely comes down to the cost of homes and resident demographics. States with pricier homes tend to contain more cities with younger people who cannot afford to buy a home or don’t want to be saddled with a mortgage. In more rural areas, the opposite is true. 

Zoning also has a lot to do with it. In pricier states, land is both hard to come by and not always zoned for residential use. According to a recent CNN article, it’s possible to buy 90 acres in West Virginia for less than half a million dollars. In more affluent states, that might not even buy you a 500-square-foot studio apartment.

At the same time, restrictive zoning laws in major cities are currently being rethought by both Democrats and Republicans as the housing crisis pushes both buying and renting out of reach for many Americans.

The CNN article also cites Federal Reserve data, which reveals that despite West Virginia’s average personal income of $52,585 per capita—the second-lowest in the country—it also has the highest homeownership rate—77%—of all 50 states. Similarly, Mississippi, which has lower personal income levels than West Virginia, has the third-highest homeownership rate in the U.S. 

Federal Reserve data shows that the median sales price of houses sold in the U.S. was $412,300 as of the second quarter of 2024. However, according to Zillow data, as of June 30, the median home sale price in West Virginia was $218,667. The average sale price was $169,446 (up 5.3% year over year). Conversely, the average home value in New York City is $1,150,639 and $1,290,350 in San Francisco.

Below, you can see a regression line showing the correlation between homeownership rates and per capita income by state.

As you can see, as incomes fall, homeownership increases.

Americans Still Desire to Live Away From Expensive Cities

Given these dramatic swings in affordability, it's not surprising that Americans are moving out of big cities faster than before the pandemic. According to U.S. Census data analysis by investment bank Goldman Sachs, remote work is a prime driver of this movement.

Data shows that while the number of people working remotely has dropped from 50% during the pandemic to 20% now, it is still dramatically more than the 2% to 3% who did so before the pandemic. The report also noted that cities with high population densities grew slower than before the pandemic. 

Data also reveals that while less affluent U.S. states are currently sparking high homeownership rates due to the lower cost of housing, should migratory trends continue, home prices could increase sharply. This is particularly true in smaller and mid-sized cities in traditionally low-cost states, as nationally, Americans have grown accustomed to working remotely and might not return to big-city living.

"Maybe there isn't going to be a rebound," Hamilton Lombard, a demographer at the University of Virginia, told USA Today about the census findings. "Maybe the rebound is over." 

A Yawning Gap in Home Prices Offers Investment Opportunities

Lombard noted in a study that domestic migration losses were concentrated in the largest metro areas with more than 4 million residents. Losses were around 400,000 before the pandemic but have been markedly higher since then, tallying more recently at 550,000 as workers have returned to big city offices. However, as recent home prices show, there is still a yawning gap between the cost of homes in different states, making shrewd investment purchases in burgeoning smaller towns and cities possible. 

Interestingly, the report showed that in 2023, roughly 266,000 big-city escapees moved to metro areas with populations of 250,000 to 1 million, with 291,000 moving to areas with populations under 250,000. Thus, for the first time in decades, small towns have been the top destination for domestic migrants.

Watch What the Corporate Chains Are Doing

The cost-of-living crisis has undoubtedly caused many Americans to reconsider the value of city living, especially when quality-of-life issues such as clean air, space, and good school systems are concerned. The decision is far from cut-and-dried for box-store businesses, depending on a profit-and-loss statement. 

For example, Lombard's report says that since 2020, Starbucks has closed hundreds of underperforming urban shops and "opened hundreds of other locations in small towns across the country that are attracting new residents." With new residents comes demand for new businesses, housing, and restaurants. 

Recently, Mexican-style fast-casual restaurant Chipotle announced it was joining Starbucks in its expansion into small towns, followed by other bowl-centered fast-food restaurants like Cava and Panda Express. Cheaper land costs help corporations offset lower sales.

"We look for proximity to the interstate and whether it is a hub of commerce in the area," Chipotle's chief brand officer, Chris Brandt, told CNBC, adding that there may be bigger towns nearby, but if they don't have a Walmart or a Target to siphon traffic from, it's not as desirable.

Bennington, Vermont, which recently opened a Chipotle, fits that bill, with a Walmart Supercenter and Home Depot, to name a few retail giants in town. "Small towns that have a college are also a great fit," Brandt added.

Final Thoughts

Despite homeownership being high in "poorer" states and rental demand being low, migratory stats infer that as populations shift, some of those statistics could change, especially in states that are within commutable distance to larger employment hubs or have seen a significant population movement. 

For example, Morgantown, West Virginia, is only 30 minutes away from the Pittsburgh suburbs. The cost of living in Morgantown (9% below the national average) is considerably lower than in Pittsburgh (2% below the national average). Housing is far more affordable, too, and it has some of the lowest property taxes in the country. Thus, it's hardly surprising that a recent Consumer Affairs report found that more people are interested in moving to West Virginia than away from it. 

As an investor, you will need to dive deep into these metrics while paying attention to local municipality development news and corporate news from retail websites to see where major big-box stores are opening new branches. While you might not have the time and money to conduct the detailed data analysis corporations do before opening in a new location, you can piggyback off their efforts when choosing where to invest for affordable rentals with a growing clientele. Not every small or medium-sized town in an affordable state is a good investment, but many soon could be.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.