The Changing Face of America’s Renters (& What It Means for Investors)

by | szikov.ru

Rewind 20 years. What did renters look like back then?

If you thought of the cast of Friends (but poorer), you weren’t wrong. Historically, renters have been young and single, with low to mid incomes and typically less education than their home-owning counterparts.

But, over the past decade, while the rest of the world was busy hyper-focusing on millennials, something happened. The demographics among renters shifted, and not how you’d expect, either.

Here’s how the face of American renters has changed over the past decade, and what it means for real estate investors.

When Did Renters Get So Old?

RentCafe ran some interesting numbers from the Census Bureau, analyzing how U.S. renters as a group changed from 2009 to 2015.

The number of renters aged 55 and over exploded by 28 percent in that period. But renters under 35? They grew by little more than a tenth of that—a meager 3 percent.

That’s nearly 2.5 million new rental households among the over-55 crowd.

And what about middle-aged types—renters aged 35 to 54? They’re smack in the middle, growing by 14 percent.

Related: 25 Single Family Rental Markets Predicted to See Growth in 2017

Nor are these empty-nesters and seniors just tooting around the suburbs in their Buicks and Cadillacs. In cities, renters older than 55 grew by 21 percent. On the other hand, young urban renters under 35 only increased by 6 percent.

That’s especially impressive given that baby boomers and millennials are similar-sized generations with about 75 million apiece.

Renters Became Better Educated

Nearly all of the growth among renters has been driven by those with at least some college education.

The number of U.S. renters with a bachelor’s degree or higher shot up by 23 percent. Renters with some college (or equivalent) grew by 17 percent.

But renters with a high school diploma (or less)? They only grew by 1 percent.

“Well, duh, more Americans are getting diplomas today than 10 years ago!”

Sure. Fine. But the growth of college graduates alone can’t account for this shift in renter demographics. About a third (33.4%) of American adults have a bachelor’s degree today. That’s higher than the 28 percent we saw a decade ago, but still not enough to explain this explosion of better-educated renters.

Oh, and here’s a curious scrap of data: the growth in urban renters has all come from the better-educated. The number of urban renters with a high school diploma or less actually declined, dropping by 2 percent. Meanwhile, urban renters with a bachelor’s degree or more rose by 20 percent.

Who doesn’t love busting a stereotype every once in a while?

DINK

Double-Income-No-Kids. Anyone else find that acronym a bit obnoxious? I digress.

The greatest growth in renters hasn’t come from those squirrelly millennials who insist on waiting longer to get married. Quite the opposite, actually; growth among unmarried renters has actually been the slowest of all groups (10 percent).

The number of U.S. renters with children grew by 14 percent. But married couples with no children? They grew by a peppy 21 percent.

Couples with no children made up the largest spike in renters in both urban and suburban areas, jumping 16 percent in cities and a huge 33 percent in the ‘burbs.

Let’s Talk Suburbanization (Again)

I raised some eyebrows when I argued that the U.S. stands poised for a second wave of suburbanization a month or so ago.

While cities certainly saw growth in renter population from 2009–2015, the suburbs saw more. Much more.

Growth of suburban renters outpaced urban renters in every age bracket, in some cases by more than triple speed.

Related: 12 Reasons Why Rental Properties Are the Best Investment

The Rental Resurgence of Single-Family Homes

The suburbanization movement can be seen in the rise in popularity among single-family rentals.

According to the Urban Institute, single-family rentals now make up 35 percent of the 44 million rental housing units in the U.S. That’s up from 31 percent ten years ago.

If those numbers don’t impress you, consider the rates of growth. The U.S. has added single-family rentals at a significantly faster pace than either multifamily rental units or single-family homes for sale since the Great Recession.

How much faster? Over the past three years, growth in single-family rentals has clocked in around 30 percent annually, compared with roughly 15 percent for multifamily rental units.

And single-family homes for sale? They spent seven years declining, reversing that trend only last year.

It may seem long ago now, with housing prices having climbed so quickly over the past few years, but the story of the Great Recession was one of moving away from homeownership and of “accidental landlords” who were unable to sell.

What’s Behind These Renter Demographic Changes?

Why are more older, higher-income, better-educated Americans renting rather than owning?

Low inventory is one challenge. Housing inventory for sale across the U.S. continues hovering at 20-year lows, at around 4.2 months’ supply. And that’s averaged across the U.S. and includes many slower, low-demand regions. And around popular urban areas with plenty of jobs, inventory is even scarcer.

Nor is that inventory even meeting buyers’ demand. New construction heavily favors luxury homes for their higher margins, creating an enormous shortage of starter homes.

Then there’s the fact that prices are rising faster than rents. Zillow’s Home Price Index rose 6.9 percent over the past year, while their Rent Index only rose 1.6 percent.

Still, it’s not all about low supply and high prices. Fewer Americans even want to buy a home. Many were burnt so badly during the housing crisis, or saw their parents burned so badly, that they no longer consider owning a home as part of the American Dream.

And perhaps older adults are onto something? Who wants to stress about home maintenance or landscaping in retirement? Maybe they’ve decided that outsourcing home care, repairs, and maintenance is worth paying a certain premium.

If renting was once the purgatory of the young and the lower-income, it’s now become a lifestyle choice.

Implications for Real Estate Investors

What can real estate investors and landlords take away from these trends?

First, don’t write off middle-aged or senior demographics as “uninterested” in your rentals. Older adults come with plenty of advantages for landlords, such as being more stable than younger renters and more likely to stick around your property for longer.

Consider marketing your rental properties specifically to retirees, as they can make excellent renters.

Second, keep an open mind about lease-option agreements. Many renters do want to buy at a certain point, but they just aren’t ready yet. A lease-option agreement will let you sell your property for full market value without having to pay a realtor’s commission and offers an incentive for renters to treat your property with kid gloves while they’re renting it.

Third, if you focus primarily on multifamily properties, don’t dismiss single-family homes as rentals. There’s plenty of demand for them as rentals, even as they continue to appreciate in value. They’re easier to sell for top-dollar, when the time comes to exit and liquidate.

Lastly, with higher-income Americans choosing to rent, it means greater potential for premium rents… if you provide high-demand amenities. Whether that means smart home tech, private parking, or Jacuzzi tubs, plenty of mid- and higher-income Americans are happy enough to hand over rent money for the right property.

What changes have you seen among your own rental properties? What opportunities do you see ahead, with older, higher-income, better educated renters?

About Author

Brian Davis

Brian is a landlord and long-time rental industry expert, who teaches a free mini-course on passive income from rentals at SnapLandlord.com. He's also preparing to launch a revolutionary rent deduction from payroll service. Swing by his website, SparkRental.com, for free resources and education for landlords, rental investors, and property managers.

4 Comments

  1. karen rittenhouse

    Brian:
    I greatly enjoyed your post. Thank you for all the detailed information.

    I have been buying single family houses since 2005 and many ask why I haven’t “moved up” to multi-families. I love and understand single family. This form of investing has been very good to us and we now have well over 100 SFH which we’re paying off through wholesale.

    When investors question my strategy, I can now point them to your post. Thanks!

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