Why Generation Z Is Leaning Into the Renting Lifestyle

Now as old as 26, Generation Z is on the cusp of reshaping the rental market as they leave the nest in increasing numbers. In fact, it is the only generation adding rental households, while the amount of millennial renters has already peaked. Gen Z, the first digital natives, is poised to become the most influential demographic in the multifamily rental market.

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.

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