Top 6 Rental Real Estate Trends in 2019

1) Millennials are promising renters (still)

Only 4% of millennials expect to buy homes in 2019 and 30% say they will wait at least five years. Additionally, Mortgage Professional America reports that home ownership among those 35 and younger has fallen from 43.6% to 35.9% in the past ten years. What does this mean? Millennials are the current renting market.

This commonality of millennials turning to renting stems from a multitude of causes. The first of those is the 2008 housing bubble; this event had a major impact on student loans that millennials are still dealing with, which makes securing mortgages more challenging and renting more appealing. Additionally, millennials hold the mindset of “go as you please” and are attracted to the option to pick up and take off wherever, whenever. Along with the freedom to move locations, they also enjoy the freedom from managing their own property. Finally, it’s no secret that lifelong commitments within this generation are being delayed, including marriage and kids.

2) Baby Boomers downsizing later than expected in life

Due to baby boomers living and working longer than previous generations, they are downsizing later in life. This resistance to downsizing will make it even more difficult for millenials to begin to purchase homes. According to Realtor.com, 85% of baby boomers indicated they were not planning on selling their home in 2018. However baby boomers are still choosing to downsize, they are just doing it later in life than previous generations.

When baby boomers do choose to downsize, it is predicted that they will look for an engaging community that has a variety of generations. National stats revealed that between 2009 and 2015, the number of renters over the age of 55 increased by 28%. This is compared to an only 3% increase in renters 34 or younger. As baby boomers are becoming more likely to become renters, they will be looking for active and independent communities rather than assisted living facilities.

3) Secondary markets are emerging faster than cities like NY, LA and Chicago

Since 2016, new rental trends have emerged and people are more likely to move to secondary markets. Over the next five years, PwC predicts that the populations of New York City, Chicago, and Los Angeles will grow at a rate of just 0.2%; while Phoenix, Charleston, and Boise will increase at the significantly faster rate of 1.6%.

This is evident in the national average for rent growth in 2019 which is 1.5%. However, the top growing city of 2019 is right outside of Las Vegas with a rent growth of 4.1%, followed by a Phoenix suburb with 4.0%. This could be attributed to the fact that many people are fed up with the increasing prices of coastal towns and are turning towards middle America to find new housing. The cities high on the list are located in regions with good economies and a lot of job opportunities.

4) Opportunity zones are popular for development

Opportunity zones were created as part of the Tax Cuts and Job Acts passed in 2017 to encourage long-term investments in low income rural and urban communities across the country. Investors will receive favorable tax treatments in hopes that these investments will drive money to underdeveloped communities.

The Opportunity Zone program is probably the most important federal program to address urban revitalization in decades, however the act has been criticized because the large influx of capital into these zones could displace the people it seeks to help. The gentrification of these neighborhoods may lead to rent increases in 2019 and the years to come. Most of the neighborhoods located in Opportunity Zones are already susceptible to gentrification and this may accelerate the process. Many cities are trying to steer opportunity zone investors towards specific types of investments. One way cities are doing this is by encouraging investors to make investments that qualify for other city economic incentives, making these investments within control of the city.

5) Income inequality is unfortunately widening

Income inequality has been rapidly growing in the United States since the 1980s. Since 1979, the before-tax incomes of the top 1 percent of America’s households have increased more than seven times faster than bottom 20 percent incomes.However, more recently due to the housing market collapse of 2008 there has been a sharp rise in the number of Americans who are renting rather than owning homes. The increase in renters has led to an increase in rental prices.

In a study done by Apartment List, they found that rents have steadily risen while monthly costs for homeowners have fallen. The bottom 10% of the income distribution have seen their costs rise, while the top 25% of earners have actually seen their housing costs fall. This is exasperating income inequality and is likely to amplify in 2019.

6) Construction growth is likely to accelerate

In 2019 experts predict that new housing construction will rise. Population growth is likely to increase the demand for homes and the construction industry will become one of the fastest-growing industries. According the Bureau of Labor Statistics, the construction industry has a 4.5% projected growth rate over the next five years.

The most desired properties in 2019 are single family detached and low rise condominiums. According to the National Association of Home Builders, during the first part of 2018 the total number of single-family permits issued nationwide increased 8.4% over the previous year. These properties are sought out by the many people can no longer afford to be homeowners and therefore demand rentals. In order to accommodate this demand construction is predicted to increase to accommodate this growing need for rental units.

The top five cities dominating housing construction in 2019 are Dallas, Houston, New York, Atlanta, and Phoenix. These cities are high-demand metropolitan areas with ample opportunity and room to grow. Much of the new construction is in the South and Southwest where land and labor is cheaper.

Overall, we are seeing that renting a home rather than purchasing a home is becoming a trend. But what is even more intriguing is where people are choosing to rent, when they are choosing to rent, and why. 2019 is going to be an interesting year for the rental market with opportunity zones starting development and income inequality on the rise.