Home ownership rates are down, and data suggest that the trend is strongest among young adults. Is owning a home no longer part of the American Dream?
Maybe. But then again, maybe it no longer needs to be.
What’s the problem?
“There are many reasons why homeownership rates are down,” says SparkRental.com cofounder Brian Davis, a real estate investor with 15 rental properties. “And the data suggest that the trend is strongest among young adults.” A few of those reasons:
- The millennial generation follows a different life path. Adults in the United States are waiting longer to get married, and today’s home prices are largely driven by dual-income households. “As more millennials marry and begin having children, we may see them increasingly following the traditional ‘move out to the suburbs and buy a home’ path,” says Davis. (This assumes, of course, that millennials are more interested in a traditional nuclear family than polyamorous dating.)
- The “right” first home isn’t available. Another recent obstacle to homeownership is a low inventory of starter homes. “Home builders have increasingly been building luxury homes (which provide higher profit margins),” says Davis. “This has led to a glut of luxury homes and a lack of starter homes in many markets around the country.”
- Renting makes better sense. According to a national survey conducted by Village Green, one of the nation’s premier apartment property management companies, “Downsizing and avoiding the burden of being a homeowner are key motivators driving consumers to choose renting.” Convenience, flexibility, and lifestyle fit are often more important than ownership.
Ultimately, young adults are making the decision to bypass homeownership based on their financial reality. “Almost every client I have has thousands of dollars in student loans coupled with a few thousand in credit card debt,” says Triplemint agent Amy McDonald. “Having too much debt causes the ripple effect: you can’t save money, your credit isn’t high enough for a mortgage, and you have to stay in expensive areas for the highest-paying jobs.”
Colin McDonald, a real estate agent for Berkshire Hathaway, echoes that opinion. “College graduates face enormous amounts of debt,” says McDonald, “hindering them from being able to save for down payments and closing costs.”
For renters: making a rental feel like it’s your own
If you’re unable to buy real estate right now, there are some ways to make the space feel more like your own. Owning your home means you can alter the residence in whatever way you desire, from painting a wall to adding a floor. It’s tougher when your living quarters belong to someone else.
But it’s not impossible. Simple changes can have big impact.
Harriet Jones, a cleaning and maintenance expert for Go Cleaners London, and Lauren Haynes, a home improvement expert at Star Domestic Cleaners, offer straightforward tips for making your rental more livable:
- Rearrange the furniture. “Give your place a fresh start by rearranging the furniture,” says Jones. “Small changes can dramatically enhance your place.” (Moving furniture also provides an opportunity for you to deep clean underneath each piece.)
- Create more “closet” space. Rental properties can lack adequate storage. Jones suggests buying sofas and ottomans that feature hidden compartments for storage. Haynes encourages renters to add bed risers to create storage space underneath the bed.
- Add soft furnishings. “Cushions, rugs, and throws add stylish accents and brighten a property,” says Jones. Find inexpensive items that suit the space—and that you like enough to reuse when you move out.
- Declutter. “Remove everything that doesn’t serve a practical purpose,” says Haynes. If an item doesn’t contribute to the overall look of the place, and isn’t crucial for daily living, it’s probably unnecessary. An uncluttered space feels more livable.
Making bigger changes without risking your security deposit
Still, simple changes may not be enough. “Renters should first and foremost read their lease agreement carefully to see what it says about tenant alterations,” says Davis. “Most lease agreements say something like, ‘Tenants may not make any alterations to the Leased Premises without written consent from the Landlord.’”
If you’re dissatisfied with more significant features of your rental space, then consider your options for improving them. Sepehr Niakan, a real estate broker in Miami who represents dozens of landlords, offers some tips on how tenants can manage more structural enhancements:
- Negotiate the improvements up front in the lease, or get approval for the improvements in writing.
- It never hurts to ask if the landlord will make and/or pay for the improvement you want. They may say no, but still be OK with you doing it. After all, if what you want to do has mass appeal—and adds value to the property without requiring them to pay anything for it—why wouldn’t they?
- If you don’t have a flexible landlord, and want to avoid asking for permission, you could go ahead and make the improvement, enjoy it while you are living there, and then return the space to its original state before you leave. This assumes that the improvement is reversible (such as a paint color or updated drapes).
- If there is something that doesn’t work as well as it should (like an old appliance) or is just unappealing (like ugly blinds), you can suggest to your landlord that you split the bill. After all, what landlord can resist getting a 50 percent discount on an improvement?
Regardless of which approach you take, make sure you document any changes you want to make to the property before you approach your landlord. Put together a list of desired alterations, ballpark costs, and a proposal for who will foot the bill. “In your pitch, focus on one of two strategies: how the alterations will improve the property’s value and/or rentability, or how the alterations are temporary and will be reversed before you move out,” advises Davis.
Get more advice in the Avvo Landlord/Tenent resource center
When you and your landlord reach an agreement, be sure to put it in writing and include exhaustive detail about the approved work and any additional stipulations. “You then have a concrete, written agreement you can reference later if the landlord tries to withhold the security deposit due to the alterations,” says Davis.
For landlords: making your property stand out
Meanwhile, if you’re a landlord looking to appeal to a cash-strapped millennial looking to make a home for themselves, how can you position yourself? Other than being flexible with some of the improvements they might want when you’re putting together a lease, what makes paying the rent worth it to them?
“Lifestyle choice is an indicator,” says McDonald. “Millennials are working longer hours and turning to rental properties for convenience and flexibility. After working 12- to 15-hour days, they don’t want to have to worry about lawn care or snow removal.”
According to Village Green, the three top criteria that most renters evaluate a community for are rent, location, and community environment. These top three criteria are the same across all generation groups and different cities.
Likewise, they expect good renter services (as do all generations). Village Green discovered that a friendly attitude, quick response to requests, and acting on renter concerns are especially important.
The location of your property matters more than anything. Millennials tend to choose cities as their community environment. Village Green’s research shows that millennials with a higher income choose to live in the city, where renting is more prevalent than homeownership, compared to suburban areas.
On average, the core cities of the 33 largest metro areas in the United States added 1.52 millennials (with a bachelor degree or above) for each person added to the surrounding suburbs.
“For those who do have the means to purchase, most tell me they don’t think they will be in the same place for five years or more (which is the number we use as a benchmark for purchasing versus renting).”
So, will the trend change as millennials age? Or is the pattern more permanent and systemic? Only time will tell.