Declining Homeownership Expected to Drive Up Demand for Rental Properties

A report by Middleburg Communities forecasts that rental housing demand will grow significantly over the next five years as homeownership declines. The study projects a rental demand increase between 33% and 49% through 2025.

Homeownership Rate Trends

The homeownership rate is expected to decline to a 20-year low of 62.1% before recovering modestly to 63.6% by 2025. This contrasts with historical averages of around 64% and the first quarter 2020 rate of 65.3%.

To underscore the impact of these percentage shifts, the report notes that "even 1% change in that number equates to 1.2 million households" given the 121.5 million households in the United States as of 2018.

Demographic Factors

Several demographic variables influence homeownership rates:

• Age: An aging population supports higher ownership rates, while young adults choosing to live with parents or roommates reduce them
• Marriage trends: Declining marriage rates negatively impact homeownership, with this factor alone causing a 1.2% decline from 2002 to 2018
• Income: Household income losses from recession reduce ownership capacity
• Race: Growing minority populations, which are more likely to rent, contributed to a 0.5% decline from 2002 to 2018

The report emphasizes the difficulty in predicting income changes, noting they depend on "the course of the COVID-19 virus" and government support levels.

Additional Drivers

Beyond demographics, other factors affect homeownership:

• Tighter lending standards
• Declining median net worth
• Rising student debt
• High down payment requirements
• Shifting living preferences

The report identifies three primary non-demographic factors: lending standards measured by average mortgage credit scores, median net worth by householder age, and what it calls "inertia"—the previous year's deviation from demographic projections.

Conclusion

Despite potential government economic assistance, rental housing demand is expected to rise substantially, creating opportunities in the rental property sector.