Millennials are a generation that could forever alter the real estate industry as we know it. Current data, economic and psychographic trends are now suggesting that it’s likely the millennial generation will forever be known as the generation that opted to rent instead of buy their homes.
According to research and statistics produced by credible entities such as Pew Research and Goldman Sachs, millennials are the largest generation ever at an estimated 92 million people, and now make up more than half of the workforce. Economically, millennials currently account for over $600 billion in spending, and are projected to have an annual spending power near $1.4 trillion by 2020.
Their impact is already being felt in the real estate market. Data shows that rent demand has increased while demand for homeownership has decreased significantly since 2007; a trend that has created huge changes in the real estate development industry. In July 2016, finance giant Fannie Mae published a Multifamily Market Commentary which reported single-family housing construction was on a continuing downward trend; meanwhile, new multifamily rental construction showed 10 percent year-over-year growth.
The debate rages on about whether millennials will join their generational predecessors and buy homes in mass quantities. As a real estate professional, there are several key factors you must consider when determining the future of millennial housing.
The California Housing Market’s Barriers to Entry
Buying a home in California requires significant capital and high mortgage payments, a combination that doesn’t sit well with many millennials.
The average home buyer in the State of California is looking at a median $507,700 investment just to get into a starter home. Look at the two biggest California real estate markets – Los Angeles and San Francisco – and you’ll get an even better idea why millennials will continue to rent. Following the 3rd quarter of 2017, L.A. had a median home price of $633,600, while San Francisco had an astounding median home price of $1,234,800.
If you’re a landlord worried about losing your millennial renters, the two questions you must ask yourself are:
1) How many people between the ages of 19-30 have $150,000 to $400,000 stashed away for a down payment?
2) How many young people can afford a monthly mortgage payment of between $4,000 and $8,000?
Ask yourself these two questions, and you will again feel bullish on your decision to cash in on Millennial renters.
Student Debt and Lingering Fears from the Great Recession
When you look at the major recession millennials witnessed their parents endure, coupled with factors like student debt and the uncertainty of social security 20-40 years down the road, you’re going to see a generation that takes matters into their own hands to secure their financial future.
Currently, Americans owe more than $1.2 trillion in student loan debt, much of it held by millennials. In one study, nearly 70% of millennials reported to having at least $10,000 in student debt, and over 30% reported they owed more than $30,000. Because of this, many are delaying major life decisions most generations made in their twenties, such as buying a home, getting married or having children. An astonishing 41% have said they will put off buying a home due to student debt; 31% will delay having children; and 17% won’t get married until after their twenties because of student loans.
Saddled with this enormous amount of student loan debt, many millennials are focused on climbing into higher paying jobs that match their high levels of education, and are willing to jump up, down, and sideways on the career ladder for better opportunities. According to the U.S. Bureau of Labor Statistics, Millennials change jobs three times more often than other generations, working for the same employer for only three years on average.
Additionally, the rise of social media and the “Gig Economy” has many young people working a 9-5 job and building a side-business in their free time. Both habits mean one thing: Millennials do not want to be tied to a home with a large piece of debt that requires maintenance and upkeep.
What you will see in the coming decade is a generation that wants many of the same things as their parents; a nice place to live, good schools for their children, and money to spend, but has a different take on the definition of financial health and freedom. This generation has the skills and drive to reignite the American Dream, and I believe will do so by returning to America’s entrepreneurial roots. Yet, they will be the paradigm shift between buyers and renters.
Two Ways to Attract Great Millennial Renters
The Millennial renting boom has put many multifamily developments in competition for quality tenants who are willing and able to support high rents. When we work with landlords and property managers to improve vacancy rates and decrease tenant turnover, we suggest the following two actions that will help keep your properties filled with quality tenants.
1. Have a Property Website
It’s been said that more than 90% of people search the internet when looking for a place to live, and digitally-native millennials are certainly no different. Today, millennials expect to go on the internet to see and learn about available apartments in their area.
One of the best ways to attract quality, high-paying tenants is to have a professionally designed property website, complete with photos, descriptions, and possibly even a video tour of the property. Your website should be optimized so that anyone searching in the local area can discover the website, and when they land on your website they’re given an opportunity to schedule a showing. Properties with high-quality, lead capturing websites are sure to stay full and maintain their base of quality tenants.
Additionally, having a resident portal on your website is a great way to allow your tenants to make rent payments online and stay up to date on property news and policy. Millennials love to pay for things on their phone and internet, so having an online payment portal can make all the difference in collecting rents on time.
2. Use Social Media
More than 90% of millennials are on social media. Today’s best developments are connecting with millennials on social media platforms such as Facebook, Instagram and Twitter, and blasting out photos, videos, and information so that the potential tenant can fall in love with renting a unit. Be sure to have active pages that post a minimum of three times per week, and always have someone responsible for quickly responding to any inquiries from potential tenants or incoming questions/comments from current tenants.
What the Future May Hold
Many in real estate will lose big because they failed to understand and plan for the major millennial shift. But all of you who develop, own, or manage rental properties are in luck. Millennials are going to be an incredible source of revenue and prosperity in the coming decades, and by being in the rental market you’re perfectly positioned to flourish in this new real estate ecosystem.
About the Author
Ty Fischer is the Founder and President of TF West, a Los Angeles based marketing and public relations agency that grows companies and builds brands in today’s digital world. A millennial business owner and entrepreneur, Ty has significant knowledge in both millennial marketing strategy and millennial economic trends and profiles. Reach him at [email protected] or connect with him on social media @thematiah.