Why Location is Critical to Rental Success
Where a child grows up can be one of the strongest predictors of their future economic outcomes. Research by Raj Chetty and Nathaniel Hendren, drawing on tax records for more than five million children whose families moved across U.S. counties between 1996 and 2012, shows that a neighborhood can have a measurable effect on long-term earnings.
A child whose family moves to a higher-opportunity neighborhood at age 9 captures roughly 56% of the positive outcomes, including income, of growing up there from birth. The benefit declines steadily with each additional year of delay. Using the formula outlined by the research, a child who moves at age 13 still captures roughly 40% of the available benefit, and the benefit is only around 10% or less for movers in their early 20s. The same exposure pattern appears across other outcomes the researchers measured, including college attendance and teenage birth rates, suggesting neighborhood quality shapes more than earnings alone.
For real estate investors and developers, this is worth paying attention to. Establishing affordable rentals in highly sought-after neighborhoods can have a meaningful impact on social mobility. It can also translate into better operating metrics such as higher renewal rates. For instance, tenants who are raising a child in a sought-after neighborhood with strong schools are more likely to stay in the area.
Why Timing Matters
The compounding nature of these effects has a direct implication for renter households. A meaningful share of renter families are not permanent renters. They are households a few years away from being financially ready to purchase a home, potentially in the neighborhood they want their children to grow up in.
For those families, every year spent waiting is a year their children are not living in the environment the research identifies as mobility-positive. The four-year difference between moving at age 9 and moving at age 13 is the difference between an opportunity to capture half the available benefit versus only a third of it, a sizable gap that hinges on whether the family can access their desired neighborhood now or in a few years.
Rental Is Not A Lesser Path
Debates around housing and inequality have long centered on ownership, but that framing misses something important. Many families who aspire to live in high-opportunity neighborhoods cannot yet afford to buy there but can rent there today. Based on our internal analysis, the monthly cost of owning a comparable home runs, on average, about 46% higher than rent, though in some markets, the difference is higher. This makes rental housing an accessible entry point into communities that have potential to produce strong outcomes for children.
Homeownership remains a legitimate wealth-building tool, but for families a few years away from purchasing, high-quality rental housing in their desired neighborhood is not a lesser alternative. For many, it is a more viable path.
Adding Supply Where Families Want To Live
For families with children, build-to-rent (BTR) can offer something traditional apartment stock typically cannot: the space, layout and privacy of a single-family home. However, creating new BTR housing in high-opportunity neighborhoods is dollar- and time-intensive. Delivering this type of housing at scale requires the combination of patient capital, development capability and professional property management.
The takeaway for BTR investors is to look beyond the financial metrics and factor in school scores, crime rates and proximity to employment. These traits are not only mobility-positive but can also drive steady renter demand.
The 21st Century ROAD to Housing Act passed by Congress protects new BTR development. This can expand options for the roughly one-third of American households who rent. This legislation reflects what developers and lawmakers can achieve when they work together, but the same collaboration needs to happen at the local level.
I encourage developers to build direct relationships with municipalities and share the data and market insight that helped shape federal policy, since zoning and permitting decisions ultimately determine the trajectory of new supply. For renter families with school-age children, BTR leaders can work to expand access to higher-opportunity neighborhoods during the developmental years that matter most.
Final Thoughts
My earlier Forbes piece argued that the American dream, in housing terms, is better understood as the freedom to choose where and how to live rather than a mandate to own. The Chetty and Hendren research gives that argument empirical weight. Location is one factor among several that may shape a child’s outcomes, alongside family stability, individual circumstance and local labor market conditions. But, arguably, location is the most actionable for real estate leaders.
In a time when the housing market is facing increased regulatory scrutiny, studies like this are a useful reminder that the right test for the entire housing ecosystem, from investors to developers, is whether their decisions expand or restrict a family’s ability to live in the neighborhoods where their children can thrive. Whether that access comes through renting or owning matters less for the children involved than whether it comes on time.
CREDIT: Forbes Business Council