Demographics are one of the most important considerations when seeking ideal tenants for any rental property. Single-family home rentals are booming right now, meaning investors, owners and property managers need to understand their ideal tenant for that market and know how to attract them in a highly competitive and noisy market.
Let’s take a look at the single-family home rental market, why it’s so attractive to millennial and active adult demographics, and how to appeal to them with the features and amenities they want most.
Single-Family Home Rentals
Currently, 70% of Americans are living in single-family homes. The single-family rental market, or SFR market, is one of the fastest-growing markets since 2006 and includes one- to four-unit properties. As far back as 1985 to the present, single-family home rentals have consistently represented just over 50% of the total rental market.
In the first quarter of 2021, SFRs vacant-to-occupied accelerated to an all-time high. And in anticipation of continued demand for SFRs, 4.5% of all single-family home construction is purpose-built for the rental market.
Single-Family Home Rental Ideal Tenant Profile
With more tenants recovering from pandemic-related job loss and even more making the switch to remote work, ideal SFR tenants are loosening their preferences for urban dwellings, switching instead to suburban life and smaller metros. The pandemic and resulting recession, significant student loan debt, a single-family home inventory shortage, and an average subprime credit score of 695 all mean the typical starter home purchase for this age bracket is out of reach, leading to a higher demand for long-term single-family home rentals.
Common reasons for not pursuing homeownership in 2020:
- Not enough money for a down payment.
- Low credit score.
- Pandemic concerns and recession.
- Current level of debt is prohibitive.
Both millennials and Gen Z tenants are keen on single-family home rentals as their long-term permanent residence. According to a recent analysis, 44% of Gen Zers making the transition from college to career life are demanding more remote work in order to live in suburbs that promote healthier, safer, more active lifestyles. Forty-three percent of Gen Z also specifically indicate single-family homes as their ideal residence. While Gen Z is a growing demographic for single-family homes, they are still young, graduating from college and entering the workforce. The focus is on Millennials as they represent the core single-family rental market.
Millennials are also seeking single-family home rentals for many of the same reasons as Gen Z, except they have established careers. Many older millennials have families, slightly altering their lifestyle preferences and motivations, focusing on active lifestyles and safety.
Specific to age and rentals:
- Under the age of 34, 34% rent their homes.
- 35-44 age group, 41% rent their homes.
- 45-64 age group, only 28% rent their homes.
- 65 and over, 21% rent their homes.
These Gen Z and millennial tenants remain in their rental for an average of three years at 76%. It’s not uncommon to see two- to four-year rentals dropping to only 74%. Tenants who remain in their rental for more than five years account for a significant 36% of Gen Z and millennial renters. This is expected to remain consistent in 2021 and beyond, effectively extending the single-family rental market runway for the foreseeable future.
Lastly, although many millennials put off having children, they are now facing family life, coupled with pandemic pregnancies, and it’s affecting the rental market. Population growth is now faster among those approaching 40 (35-44 age group) than in the 25-34 group. This means single-family homes are more desirable than apartments because of the ability to spread out, have a yard, exert more control over your environment and benefit from longer-term neighbors, which leads to more safety and consistency.
Additional basic demographics, see below:
- Racial demographics:
- 51.79% of renters identify as Caucasian/Nonhispanic.
- 19.65% of renters identify as Hispanic or Latino.
- 20.25% of renters are Black or African American.
- Native Hawaiian and Pacific Islander is the least common racial demographic among renters at 0.23%.
- Education:
- 28.3% of renters have a bachelor’s degree or higher.
- 13.6% never graduated high school.
- Purchase versus rent:
- 13.32% of millennial renters say they will always rent because they will never be able to afford to buy a home compared to 8.28% in 2019.
- Only 13% of millennial renters across the U.S. will be able to afford a traditional 20% down payment within the next five years.
Demands and Deal-Breakers
Millennials want to be close to restaurants, entertainment and grocery stores, looking to bring the city to the suburbs. This is creating demand for mini-metros with a sense of identity. Areas with walkable neighborhoods, engaged communities with activities and events, and proximity to parks and other outdoor venues continue to remain on the list of desirables.
As they age, they’ll want more medical centers readily available, just as baby boomers migrated to areas with more and better health care throughout the United States when the generation hit their late 50s.
Even though many millennials work remotely, which plays into their use of space at home, there is still a demand for proximity to employment.
One-, two-, and three-room attached or detached homes are preferred. Bedrooms aren’t always bedrooms — home offices, game rooms, workout spaces and hobby areas are also high in demand.
Spending money on a single-family home rather than an apartment also leads to demands for higher-end finishes. That amounts to high ceilings, private yards rather than patios or balconies, and upscale interior finishes. The single-family home renter is looking for stainless steel appliances, hardwood-style flooring, laundry within the unit instead of community access, and even quartz countertops.
Alongside day-to-day lifestyle preferences, these renters are also concerned with sustainability, more control over their spaces, and security. This is where tech steps in as a key differentiating factor in the angle family renter market that wants to attract more ideal tenants. To cut through the noise and connect with long-term, high-quality tenants, property managers need to speak to life in a rental as being as close to ownership as one can get without a mortgage, deed and equity.
Access to smart home automation features like adjusting the thermostat from their mobile devices and being able to track other appliances, like HVAC and water, is a big win. Keyless entry, security systems, mobile controls over smart bulbs and other smart home technologies are also high in demand.
These features not only speak to security, efficiency and the opportunity for a greener lifestyle, they engage the renter in more ownership of the home and how it serves them. The ability to “own” their space while living there leads to fewer vacancy days between rentals and longer-term tenants.
Final Thoughts
Builders, developers, investors and property managers all have a significant opportunity for growth in single-family home rentals. The days of building multiple units, surrounded by tenant parking lot spaces, near a freeway for commuters is no longer the fate of the suburbs.
Instead, marketing to ideal tenants in this market requires attention to the character of the home. Tenants want the ability to be engaged owners of their experience on the property through smart home automation and the design of the space. They also care about the neighborhood and not just the school district. They want activities, entertainment and city-like amenities in their micro cities.
References:
National Rental Home Council – Resources: Single-Family Home Rental Market Snapshot
Arbor Research – Q1 2021 Single-Family Investment Rental Trends Report
GlobeSt.com – Gen Z Renters Are Ditching the City in Favor of Vibrant Suburbs
Statista – Which of the Following Are Preventing You From Homeownership at This Time?
Policy Advice – Current Rental Home Statistics
iProperty Management – Renting Statistics
Forbes – The New Face of Rental Housing: Single-Family Built-for-Rent
