Family-oriented rental housing represents an enticing expansion opportunity for builders and developers, driven by demographic trends, economic factors, and shifting consumer preferences, according to new research by the Urban Land Institute and RCLCO Real Estate Advisors.
“Although the number of families living in the United States remained relatively constant during the past decade, this demographic is poised to experience significant growth in the 2020s and beyond as more and more millennials have children,” stated the authors of the report.
Here’s a look at nine key takeaways from “Family Renter Housing: A Response to the Changing Growth Dynamics of the Next Decade” (text and charts courtesy ULI/RCLCO):
#1: Families comprise one-third of the entire renter pool in the U.S. (13.5+ million households), more than three times larger than the number of single millennial renters in the country.
Despite the size of the family renter demographic, a very small share of new single-family and multifamily developments are oriented toward these renters. New apartment units, on average, are 100 square feet smaller than those built in 2007. And single-family rental communities remain a budding market, at best, in most metros.
These development paradigms point to clear opportunities to better serve family renters, who represent a key and growing segment of the overall housing market.
#2: Family renters live in a diverse range of housing, but they are more likely to gravitate toward single-family homes than are other types of renters.
About half (47%) of family renter households live in single-family detached or attached homes, compared with just over a quarter (26%) of non-family renter households, according to the report.
This difference suggests that suburban settings—as well as the schools, amenities, and lifestyles that they offer—continue to attract many family renter households, much like family owner households. Even so, very few homebuilders are delivering single-family homes with the intention of renting them.
#3: Faced with skyrocketing housing costs, many families choose to rent rather than to own, often to avoid sacrificing other items such as space or location.
Nearly 58% of family renter households have incomes below $50,000, compared with less than 19% of family owner households. Likewise, just 13% of family
renter households earn more than $100,000 annually.
#4: Similar to economic circumstances, the life stages of many families also motivate them to rent. In the U.S., more than half (58%) of divorced, widowed, separated, and unmarried families live in rental housing, compared with just over a quarter (26%) of all married families.
The fact is, many families decide to rent because of major life changes or for other personal reasons.
#5: Young millennials and aging baby boomers have driven most recent population growth, which is part of the reason why new housing development has focused on singles and couples rather than on families.
In recent years, the number of families in the United States has remained relatively constant, as millennials have entered into parenthood at roughly the same pace that baby boomers have transitioned out of it. As a result, net new growth in family-aged households has remained low.
#6: However, the millennial generation is reaching a demographic tipping point, and many of its members are poised to have children in the years to come—regardless of whether the housing market is ready for them.
The U.S. Census Bureau expects the number of people between the ages of 30 and 50 to grow by 8% between 2020 and 2030, compared with less than 1% growth in this demographic between 2010 and 2019. As a result, families are likely to play an even more substantial role in the national housing market than they have in years past.
#7: A large number of millennial households already have children, and this figure is likely to continue to grow as the generation ages.
Today, 47.6% of millennial households have children, even though their generation is only just beginning to reach “peak” family age. In comparison, 55.9% of generation X households have children at this time, highlighting the room for growth among millennial households. As more and more millennials have children, the lack of family-oriented rental housing is likely to become a growing constraint in the national housing market and a growing opportunity for the real estate community.
#8: Long-term homeownership trends indicate that the share of Americans who are purchasing their own homes is flattening, if not decreasing, in every age cohort.
At 64.5%, the current homeownership rate has experienced a slight uptick in very recent years, as younger households have demonstrated a greater propensity to purchase homes. While there may continue to be marginal increases in ownership propensity, it is more likely that these latest changes reflect a stabilization of behavioral patterns and economic realities.
Looking specifically at family-aged households, the share of households between the ages of 25 and 44 that own homes remains much lower than it was before the Great Recession.
#9: There is evidence to suggest that millennials are being more selective and deliberative with their housing decisions, potentially prolonging the time that it takes them to purchase homes.
Relative to members of other generations, millennials tend to place a higher value on a number of neighborhood characteristics, including proximity to employment, convenience to entertainment, proximity to parks and recreation, availability of larger lot acreage, and access to public transit—all factors that tend to increase construction and land costs and, ultimately, housing affordability. Coupled with barriers to homeownership, these varied preferences and their related costs highlight some of the reasons why many millennials continue to rent.
Download the full report, “Family Renter Housing: A Response to the Changing Growth Dynamics of the Next Decade.”