With inflationary pressures bearing down on the average American family, the Federal Reserve has taken swift steps to raise interest rates. By doing so, it has also pushed mortgage prices up at an abrupt pace making it unaffordable for many would-be homeowners to purchase residential properties. Thus, multi-family investors are once again reassured as renters reconsider moving, sign leases, and stay where they are.
While the market will always swing on a pendulum between owning and renting, mortgage rates appear to have hit bottom in late 2020 and are on an upward trend. Rental property owners can expect strong rents and high demand for their spaces as policymakers attempt to avoid a recession through interest rate hikes. While many people still will choose to purchase their home, there is a large population of people interested in long-term, high-quality rental housing in desirable locations.
Who is “Generation Rent?”
Buying a home is a distinctly personal choice. Homeownership has been on the decline for decades with each new generation owning fewer homes than the previous. Many socioeconomic factors play into this phenomenon like income, education, and employment status but the future demand for rental housing cannot be ignored. People are choosing to rent for longer periods of time and in some cases forever. The housing market has simply priced potential owners out of it. This group of renters has been generally termed “Generation Rent.”
A major age group in Generation Rent is Millennials preferring to rent instead of owning. Born anywhere from 1982-1996, these renters have come into their working years during some of the worst market downturns in history. Because of such negative economic factors, they are getting married later, having fewer children, and postponing homeownership. Unlike their parents, Millennials are not tapping into homeownership as a wealth-building tool. Millennials will own approximately 3.3 million fewer homes by 2040 than if they were owning at the same rate as Baby Boomers.
Future Rental Property Demand Grows
As more and more potential homeowners are priced out of the market, the same 3.3 million people will become future renters by 2040. Single-family properties continue to remain attractive as investments, but multi-family properties demand strong rents and deliver solid annual returns. For both individuals and institutions, the ability to rent out units for 15-20% above pre-Covid levels is not uncommon and is predicted to remain constant as mortgage rates increase well into the future.
Investing in urban properties close to amenities like shopping, entertainment, and recreation will appeal to Generation Rent. Gearing your property to visitors and pets will also attract Millennials. Function is the new luxury as pet-friendly policies and ample parking lots over-shadow pools and doormen. There will also be a future emphasis on eco-friendly building techniques. Generation Rent wants low-maintenance, efficient living and will pay to get it. Sustainable living that saves them time and money will be paramount when looking for their next landlord.
All Generations Benefit from Renting
Attitudes toward renting differ but the desire to maintain financial freedom coupled with coming and going as one pleases creates undeniable independence. Newly retired individuals may rent to be close to family. Newly graduated adults may rent to stay flexible for job opportunities. New parents may rent to save money for a down payment. Regardless of the reasons why single-family and multi-family rental properties continue to fill specific housing needs.