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Posted by on Jul 16, 2018 in Economy, Society | 0 comments

Millennials Are Taking the Renting Market by Storm — What’s the Economic Effect?

Two groups in America who are becoming renters more often and in greater numbers than any other: baby boomers and millennials. In fact, when you look at the annualized data, more American households are renting apartments today than at any point in the last half-century. And the trend is being driven mostly by some of our oldest and some of our youngest citizens.

One possible reason is that we’re all still being chased by the ghosts of the most recent housing crisis, which has caused lenders to raise their standards for “creditworthiness” lest history repeat itself. But with millennials taking the renting market by storm — both out of necessity and by choice — many of us are wondering just what the larger economic effect is likely to be. What’s happening to the American Dream, and where do we go from here?

Why the Pivot?

Millennials are gravitating toward renting and eschewing or postponing homeownership in larger numbers for several reasons:

  • Mobility: Whether it’s to reserve the option to uproot themselves and relocate because they wish to travel more often or simply because they’re more likely than other demographics to job-hop repeatedly, the possibilities afforded by a relatively more transient renting-based lifestyle are difficult to deny for millennials.
  • Convenience: In general, renting standards have risen over the decades. Even moderately priced apartments frequently come with utilities and amenities bundled in, including internet access, electricity, water and sewer access, trash pickup, onsite gyms and pools, laundry facilities and, of course, the 24/7 availability of maintenance professionals, which removes a huge part of the burden of homeownership from residents’ shoulders.
  • Finances: Some of the expenses that can be planned for, including insurance premiums, may be influencing millennials too. Rather than maintaining a homeowner’s insurance policy, renter’s insurance, though not always required by landlords, does come in at a much more affordable $15 per month, or around $200 per year.
  • Community: Finally, it might be that a sense of community is also keeping millennials in apartments. Proximity to town and metropolitan centers — including shops, restaurants and lots of opportunities for socializing — likely has a hand in keeping the younger generations in apartments.

What Are the Implications of a Renting Economy?

We rent (or rent-to-own) our cars and smartphones. We rent access to movies, video games and TV shows. Comcast Mobile rents bandwidth from Verizon. Everybody rents from everybody else. Is homeownership an antiquated ideal? It sometimes seems so. The ownership of personal property seems like less and less a priority for America’s younger generations.

There are several immediate implications of the nationwide pivot from homeownership to renting. The first is a generally more stable credit market, at least where property ownership is concerned. Lenders have been scared away from signing off on subprime and risky loans by regulatory pressure and common sense.

The pivot away from owning homes means fewer of us are defaulting on our mortgages. Although choosing to rent over buying is often discussed as a choice, financial realities also mean it’s often not a choice at all. But at the end of the day, the upside is fewer folks getting kicked out of homes they can’t actually afford to own.

Some implications of millennials’ embrace of renting culture are a little less concrete. Whether the decision to rent rather than own is an actual choice or a product of financial necessity, one consequence is that the country as a whole has become less optimistic than ever about the general trajectory of the national and global economy. Based on polling data conducted in 2013, just 15 percent of Americans believe young people today will have more prosperous lives than their parents.

There are, of course, some upsides to an up-and-coming generation of young, engaged and ambitious young people using their savings for something other than pumping cash into land and property. According to researchers, millennials have a strong entrepreneurial drive and a well-observed desire to leave their mark on society. Renting means more money to start businesses. It also means more money for paying down the collective, historically unprecedented levels of student loan debt.

The Effect of Educational Costs

Interestingly, higher education represents another implication of low rates of homeownership among young people. If owning has become more difficult for millennials, so has affording college. But it seems so far as though, when faced with making a choice between the two, millennials opt to borrow so that they can afford to educate themselves more frequently than they borrow to purchase property.

This path too, of course, is a product of an ever-higher barrier for economic participation. In 1992, roughly half of American students borrowed $15,000 to cover their tuition. By 2012, undergraduate students were averaging $29,400 in student loans. If the choice comes down to putting money aside for a down payment and putting money aside to improve their future employment prospects, millennials seem to have answered by choosing education over “settling down.”

This change is encouraging on one level and bittersweet on another, because student loan debt, too, comes with society-wide implications. A two-person household saddled with a “typical” student debt load will see their joint earnings reduced by $200,000 over the course of their lifetimes.

A Dream for Whom?

The most frequently cited reason among these demographics for declining or postponing homeownership is financial barriers. But the American Dream used to include owning property and a home as a matter of course. Does it any longer? Should it still? And are we being disingenuous if we claim the pivot away from this portion of our shared dream has been entirely our choice?

Is it okay that so many of us have to choose between educating ourselves and planting a flag in a patch of earth we can call our own?