Suburban homeownership has long been a mainstay in the real estate landscape; the bread and butter of a broker’s profession. But the last decade has seen some big changes across the suburban landscape, causing real estate professionals to look elsewhere for their main source of income.
Millennials — those born in the 1980s and early 1990s — and members of Generation (Gen) Z — those born in the late 1990s and early 2000s — are creating a demand shift in California’s suburbs. Renters have become the majority in the suburbs of our nation’s largest metros, a significant generational shift compared to past homeownership rates and demographics.
Between 2010 and 2019, the number of suburban renters increased 22%, causing 103 suburbs of our nation’s largest metros to flip to a renter-majority population, according to a RENTCafé analysis of Census data.
The top areas where suburban renters became the majority between 2010 and 2019 were:
- California;
- Florida; and
- Washington, D.C.
For example, in the Los Angeles metro area, renters made up:
- 53% of suburban households in Rosemead;
- 51% of suburban households in Beverly Hills;
- 51% of suburban households in South El Monte;
- 51% of suburban households in Lynwood; and
- 50% of suburban households in Gardena, according to RENTCafé.
In the San Francisco metro area, renters made up:
- 60% of suburban households in San Pablo;
- 45% of suburban households in Pittsburg
- 41% of suburban households in Antioch;
- 39% of suburban households in Freemont; and
- 35% of suburban households in Walnut Creek.
In the San Diego metro area, renters made up:
- 56% of suburban households in Bostonia;
- 62% of suburban households in El Cajon;
- 58% of suburban households in La Mesa;
- 54% of suburban households in Vista; and
- 49% of suburban households in Escondido.
In the Sacramento metro area, renters made up:
- 59% of suburban households in Arden-Arcade;
- 57% of suburban households in North Highlands;
- 47% of suburban households in Rosemont;
- 46% of suburban households in Carmichael; and
- 46% of suburban households in Florin.
In the Riverside metro area, renters made up:
- 44% of suburban households in East Hemet;
- 41% of suburban households in Banning;
- 39% of suburban households in Hesperia;
- 37% of suburban households in Rancho Cucamonga; and
- 36% of suburban households in Chino.
55% of majority renters are Millennials and members of Gen Z. With median household earnings around $50,000, these households are looking for housing options that fit their budgets. Saving up for a down payment for a house is a big obstacle for this current generation of first-time homebuyers. Nowadays, it takes on average 36 years for renters to save up for a 20% down payment on a home and in California it can take even longer; an impossible 70 years with a median income.
Without outside help in the form of down payment gifts, inheritance or unexpected windfalls, most Gen Zs and Millennials have no choice but to resort to renting as the more financially feasible option.
A generational shift for housing
The white picket fence commonly associated with the American Dream has morphed into a new type of housing goal. Low-to moderate-income earners are struggling now more than ever to find housing that fits their budgets. As builders turn towards investing in higher, denser housing and away from costly single family residential (SFR) construction, Gen Zs and Millennials, faced with limited options, are forced to rent.
One of the biggest obstacles facing young homebuyers is a massive amount of student debt that’s only increasing every decade. The nationwide total student loan debt in the third quarter (Q3) of 2020 was more than $1.7 trillion, a stark comparison to a decade ago when Americans owed roughly $845 billion in student loans, according to the Federal Reserve. Gen Zs and Millennials also face stagnant income growth that has failed to increase at the same rate as home prices.
The jobs market has not always been the most advantageous for these groups. Millennials faced complete job unavailability during and following the Great Recession, which caused them to enter the workforce much later, thus delaying homeownership. Fast forward to the 2020 recession, and Gen Zs had no choice but to enter an unripe job market, struggling to find the right jobs to jumpstart their careers and incomes.
Rather than SFRs, multi-family units like condos and townhomes are likely to become the next steppingstone into the housing market when this current generation of renters is ready to become first-time homebuyers.
We don’t know what the future holds for Millennials and Gen Zs in this unstable market. It can get better, or it can get a lot worse. The direction depends on how proactive California legislators are in addressing high permitting costs and easing zoning laws to help builders construct more housing quickly, especially in the low-to mid-tier. With more housing options available to suit all household incomes, today’s renters-by-necessity will become eager first-time homebuyers.
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