Every time you go into Boston, New York, San Francisco or other major cities, there is a new luxury apartment being built. For $2,000, $3,000 $4,000 or $5,000+/month you can get a one bedroom apartment with countless amenities.
I can imagine that 30 years ago, people would start out in a decent apartment, then aspire to move out to the suburbs or the outskirts of a city into a house.
But now the goal is to live closer to the center of the city, in a nicer apartment with more amenities. At least, that feels like the goal for many millennials. Instead of using bonuses and salary increases to get you closer to a downpayment on a home, they get your closer to absorbing an increase in monthly rent.
I think this trend is why there continues to be room upmarket for nicer and nicer apartment buildings. Even though a $4,000/month one bedroom may seem out of reach when you enter the workforce making $50,000/year. As you move up the ladder and you keep your sights set high, you get closer to affording obscenely expensive rent. Eventually, when you’re making $150,000/year and splitting the cost with a significant other, your $4,000 apartment makes sense.
I think this bubble starts to burst as soon as we hit an economic slow down and it falls out of vogue to live in such luxurious housing. Even if the salaries of the people working at top tier companies don’t fall and they could still afford the housing, eventually the social push back will mount.
People will start to be more cautious about their decisions to live so auspiciously, and again there will be a retreat to more modest, suburban, owned housing.
Who knows, though. Maybe that won’t happen. Maybe it won’t happen for decades. But I think the movement up market can’t continue on forever.