Why Generation Z Is Leaning Into the Renting Lifestyle

• Generation Z, the only renter-majority generation, eclipsed 5 million households in 2022 and will become the largest renter demographic by 2030.
• Gen Z faces more significant barriers to homeownership than their parents did, including elevated interest rates, a higher cost of living, and a limited supply of quality housing.
• One in three Gen Z adults say that homeownership at any point seems to be financially out of reach.

Gen Z Grows Up and Moves Out

Generation Z, a demographic age group of Americans born between 1997 and 2012, includes about 20% of the population, or 68 million members. As they grow up, the members of Gen Z are beginning to move out on their own and form new households. In 2022, there were 5.4 million households of Gen Z renters in the U.S. By 2030, Gen Z is expected to become the largest demographic of renters in America.

In 2022, Gen Z, not all of whom are of working age, made up 12.8% of the total U.S. workforce. But, Gen Z is on pace to outnumber baby boomers among full-time workers by the end of this year, Glassdoor projects.

However, many in Gen Z are rent-burdened and believe homeownership may not be in their future. With an average individual salary of $33,800 per year, many live paycheck-to-paycheck. A 2022 Freddie Mac survey found that about one-third of Gen Z felt that owning a home would not be possible in their lifetimes, up from 27% in 2019.

Sometimes called Zoomers, Gen Z is interacting differently with the rental market than millennials. They tend to be more interested in personal fulfillment and happiness rather than wealth and influence. Bucking a long-standing trend, these young adults have been opting for more space and lower-cost housing located outside of cities.

Zoomers Face Bigger Barriers to Homeownership

As the members of Gen Z reach adulthood, they enter a housing market that has changed considerably since their parents first bought a home.

Elevated interest rates: Since 2022, the Federal Reserve has raised the federal funds rate 11 times to tame inflation. In January 2024, the interest rate on a 30-year fixed-rate mortgage averaged 7.22%, up from near-zero in March 2022 yet below the average rate over the last 40 years.

Higher cost of living: From 1999 to 2022, the average price of rent in the U.S. spiked 135%, while average income increased 77%, according to Moody’s Analytics CRE.

Low supply: Currently, the U.S. has a deficit of about 3.2 million homes.

Higher housing price points: The average new home mortgage payment is 52% higher than the average rent on an apartment, which is higher than at any point since at least 1996.

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Gen Z Sees Renting as an Attractive Option

Today, one in three Gen Z adults believe homeownership is not attainable in the future. But it doesn’t seem to be phasing them. They show high rates of satisfaction with renting. More than three-fourths of those surveyed by Freddie Mac said flexibility was a key benefit of renting, while 63% cited how it can be less stressful than homeownership. Other survey respondents mentioned how renting offers the opportunity to live in attractive locations where the cost of owning a home is high.

Interested in personal fulfillment, Gen Z values the flexibility and reduced responsibilities central to the renting lifestyle, giving them a greater ability to pursue their passions.

The Outlook

As many Americans delay homeownership, Generation Z is embracing renting as a lifestyle choice and the commercial real estate industry has taken notice. In communities across the country, new single-family rental and build-to-rent communities are being built with features attractive to young people, including high-speed internet connections, green spaces, and dog parks, which aim to improve tenant retention and ultimately strengthen the rental housing market’s supportive tailwinds.

Source: Arbor

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