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This trend is very significant for owners of residential investment property because it means that rental demand is increasing to historically significant levels.
But to really understand rental demand, including likely future trends, it is important to dig a little deeper and get to the economic drivers that are contributing to these statistics
One of the effects of the foreclosure crisis has been the displacement of a huge number of American families who have steady, good paying jobs. They have entered the rental market and have to remain there for quite some time. They cannot buy another home because their credit is destroyed and they cannot get a bank loan so they need to rent.
Because they used to be homeowners, they want to live in a single family home, not an apartment. So there is a large and continually growing rental market for single family homes.Â
Looking forward at the next generation of potential homebuyers who did not get tripped up in the last housing downturn, there are additional factors keeping them as renters until much later in their lives than the previous generation. In general they are putting off marriage and family formation until later, but one crucial economic factor is the exorbitant amount of college debt today’s students are incurring as tuition rates continue to skyrocket. This is non-dischargeable debt that cannot go away even with a bankruptcy.
In 2017, Reuters reported that The millennials are either turning into a permanent renter class or boomeranging back to childhood homes to live with mom and dad. Nearly 45% of people in their early twenties live with their parents, up from 33.5% in 2004.3
In 2019, Forbes reported, “As of Q2 of the 2019 fiscal year, for borrowers ages 25 to 34—a significant share of the Millennial population—there was $497.6 billion in outstanding student loan debt for about 15.1 million borrowers. This translates to an average student debt of around $33,000 dollars for each borrower“.4
And not only do more students have debt but the amount of debt is getting much larger as ever declining public funds have caused college tuition to skyrocket. In June of 2020, CNBC reported that “During the 2008 recession, many opted to go back to school and gain new skills. However, since then, the cost of a four-year college degree increased by 25% and student debt increased by 107%“5
So, whether it is because they cannot afford a down payment, or because they cannot get a mortgage due to delinquent student loan payments, these economic factors are increasing the number of renters in the U.S. and shaping trends for years to come. If some of the much-needed student-loan reforms get enacted and things gradually start to turn around then a growing first-time home-buyer market will provide a great exit strategy for real estate investors that are buying rental property during this period.Â
In the meantime there will continue to be a need for real estate investors to provide quality rental properties to help meet the increasing rental demand.
We are not a tax professionals, this is not tax or legal advice, and tax laws are constantly being changed and revised and may change the day after you read this. So, this is for informational purposes only, and it is your duty to consult with your own tax professional about your individual situation and the most updated applicable laws before attempting to implement any of the content in this post.
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