It’s a fact that we are becoming a “nation of renters”. The percentage of households that rent their home has skyrocketed from 31.2% in 2006 to nearly 37% today. The last time the rate of rentals hit that level was in 1965. So why are so many Americans renting today, and how does this – and other factors – bode well for apartment investing going forward?
The aging of the Baby Boomers
There are 10,000 “Baby Boomers” (those born between 1946 and 1964) retiring each day in the U.S. This giant age group is transitioning from homeowners to home renters as they downsize and invest their capital in income-producing assets rather than a smaller home. This is the largest demographic group in the U.S., and their sheer mass is a huge powerhouse behind apartment demand. And this trend is projected to continue for decades.
Lower capital to invest by younger generations
The second largest demographic group in the U.S. are the “Millennials” (those born between 1981 and 1996). This generation is lacking sufficient capital to buy a home, thanks to giant student debt as well as lower job incomes and simply the timing of the 2007 Great Recession. The Millennials, unlike the Baby Boomers, are moving into apartments based on economic necessity, and this does not appear to be ending in the future.
The lack of desire to own
Beyond economic forces, there is also a fundamental shift in the thinking behind the “American Dream” of home ownership. Across America, many people are no longer seeing the importance of buying a home and prefer to rent as a lifestyle choice. The reasons include no interest in maintaining their dwelling, the freedom to move at will without having to sell their home, and general lack of belief in the concept of continual home value appreciation.
The end of the stigma against renting
At one point in American history – roughly the 1940s to 1960s – there was a common conception that all successful people owned their homes and those who were not as successful rented. That stereotype was advanced in the media and politics and was part of the reason for the giant expansion of the single-family home market during this period. However, in recent years that stigma wall has come down due to the fact that many of the most luxurious properties constructed in recent years are all rentals – everything from expensive high-rises to beach-front dwellings. There is no longer the association of rentals and lesser properties, and this allows everyone to feel free to rent without any negative connotation.
Apartment investing has benefitted from some unique shifts in U.S. demographics, as well as cultural changes in how we see renting as a lifestyle choice. These are megatrends that will be around for decades, and are extremely positive for all apartment properties.