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Leasing Life: The Emergence of the Forever Renter

A Home for sale and for rent at the same time

The Wall Street Journal recently looked into a major trend that we all see emerging in cities and suburbs across the US. This trend is the 'Rise of the Forever Renter.' It seems as though the attraction of owning a home has been losing its luster over the recent years. This begs the question: is this generational, financial, market driven or a kneejerk reaction to the prior that will change in time?

The American Dream: On Hold?

It wasn't so long ago in our young country that owning your own home and laying down roots was part of the American dream. To many, it still is. But what we have been seeing lately is that the restrictions that home ownership brings are pushing many to lean toward the un-tethered lifestyle of renting, with no plans to ever own their residence.

The movement isn't only the restrictions, but the cost. Owning a home is not cheap (nor is renting at the moment). Some who began renting as a step toward owning have been sidetracked and now have no plans to own, ever. Rates are high*, prices are high, remodeling expenses are high. Why do it? (*Before you say it, yes, we all know folks were paying 15+% in the 80's)

The Data For The Forever Renter Aren't What We Think

Interestingly enough, in support of the liberation factor, it's not just lower income buyers that have been deterred. The numbers show that lower incomes are renting less and buying more. The opposite of higher income earners.

A Chart showing amount of renters by income level.

There is no doubt that we have a housing shortage in the US. What used to be considered a starter house would almost be considered a tiny home by today's standards and nobody is building them. There are a TON of these homes out there, but many are still owned by a generation that bought them, built roots, raised kids, paid them off and stayed put. The market needs them to budge. They won't.

Are Expectations A Problem?

Home builders are building what makes money and what society demands, or at least what we think we want. They either want 2500+ square feet and 3 bathrooms, or they want a turnkey flat with zero worries. Fix a toilet? No thanks. Take care of a pool? Pass. Older generations may not understand this logic, just like current generations don't understand the joy one may have of working on the yard on a sunny day and getting excited to have that 'mortgage burning party' someday. Similar to how the older generation doesn't understand why millennials love avocado toast so much, it's all in what you want out of your years on the spinning rock we live on.

All of that said, I would be remiss if I didn't address where the opportunity lies in all of this. Obviously for the rental market, developers who can offer a community of luxury condos, amenities, lifestyle and ease create an attractive option. That is if the trend continues. On the flip side, can this same vibe be built in communities with small but modern homes at cheaper costs? Possibly giving consumers the best of both worlds - affordable yet luxury homeownership coupled with easy maintenance, community and amenities, as well as the ability to turn the key and go? This gray area hasn't been explored from where I sit. Life has become busy. Taking care of a home takes time that many don't believe they have.

From the immediate financial side of things, it's understandable. Mortgage rates are significantly higher than in the recent past. Couple this with home prices that climbed while rates were low, plus our taste for bigger and better and you have an expensive commitment. We travel more, we are connected seamlessly, and technology and societal norms allow us to have more wanderlust. The commitment of bricks and mortar, not just a cell phone-style monthly payment to have it all, with zero worries, isn't as sexy to many. I get it.

Renting vs. Owning Requires Different Long-Term Planning

But, to play devil's advocate, the approach of renting forever takes a different long-term plan in regard to building wealth. Owning a home typically leads to the financial independence of not being at the mercy of a landlord or rising borrowing costs and inflation. For most, your home is your biggest cost (until paid for) and also your biggest asset. Renting forever still keeps housing as your biggest cost (forever) and adds a big zero to your asset column. Physical independence now vs. financial independence later? Maybe this is the intersection where we sit.

This means that investing and saving for the future calls for different rules for the same game. The game being financial stability and independence in your later years. Owning a home diversifies your assets between real estate and liquid assets (your 401k for example). Without it, one must think about what basket they place their eggs into.

Personally, I love that generations are challenging the norm. They are chasing experiences, traveling more, untethering themselves from what the 'norm' has always been. There is no shame in trying to take in the most that life has to offer. But, as there are multiple routes to get to the same destination, you may need pack a bit different bag for the trip there.


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