Since the housing crisis in 2008 Americans have been rethinking their housing decisions. As a result, entrepreneurs and industry leaders have been quickly working to create solutions that meet shifting demands and expectations.
One of the significant changes has been how discerning customers have become. Leading up to and immediately following the recession, there were only a few digital tools consumers could leverage to assist with housing decisions. Compounding that problem, the data needed to provide actionable insights didn't exist yet. Now the number of listing and support services abound, and the market is shifting as well.
In 2014 rental vacancy rates decreased by 2% which indicates more people were opting to rent instead of purchasing a home. It is also likely that the maturing Millennial population which is beginning to move away from home is driving up the number of renters in the market.
The last few years have seen steady growth in all housing related sectors, and as a result, the entire industry is in transition. The following are the top trends that will impact housing in the coming year.
Concierge services gaining popularity
With an overall increase in the number of Americans renting apartments, there is a need for more effective listing services. Sites like Zillow and Redfin specialize in home value data but do not have user-friendly listing platforms. Similarly, existing apartment listing sites don't vet the data from buildings that are listing, which leaves renters in a bind when listings don't meet their expectations.
Ashrit Kamireddi, CEO and founder of VeryApt, a concierge apartment service, explains why online listing services like these struggle. "The most frequent complaint from renters is that traditional sites don't verify their listings. Anyone can post a rental unit on these sites and there is never any data verification. This results in duplicate listings, inaccurate and outdated pricing, and in more extreme cases, bait and switch or outright fraudulent postings. Because of the erosion of trust with traditional rental sites, we've seen an increase in demand for a concierge rental experience."
Concierge services are gaining popularity in all industries, so it comes as no surprise that the rental industry is beginning to make the shift as well. While scale is an issue for many companies in launching a concierge platform, Kamireddi says technology simplifies the process. "Machine learning enables our recommendation algorithm to get smarter over time by analyzing which apartments our users ended up selecting." As the technologies backing these services improve many will be better prepared to meet consumer needs that have been previously unmet.
Millennials taking longer to buy homes
The housing crisis had a significant impact on the purchasing behavior of Millennial consumers. As they watched the market crash during their early years, many of them became hesitant to invest in a hard asset that might not retain its value. Now there is concern that Millennials, which represent the largest consumer group in American history, might not buy homes as frequently as their parents did, meaning increased inventory that will likely drive down profits in the real estate sector. Derek Thompson of The Atlantic details, "the share of 18- to- 34 year olds--a.k.a.: Millennials--who own a home has fallen to a 30-year low."
This is causing an increase in housing inventory that is causing concern for the real estate market. Not everyone Millennials that do purchase homes are buying later than their GenX counterparts. This has increased demand for rental properties, while significantly impacting the demand for new construction. There are many theories on how to engage Millennial buyers, but some are giving up on the traditional home as a model and encouraging Millennials to buy for short term rental investments on platforms like Airbnb and VRBO.
Empty nesters opting for smaller format rentals sooner
While Millennials are a significant consumer group, Baby Boomers and older GenX'ers are opting for rental properties faster as well. The reasons are numerous, but one of the most important is the looming retirement savings crisis. Over 66 million Americans don't have money saved for retirement, making the idea of selling their home for a quick return and then renting cheaper properties an enticing solution for retirement.
There are also more and more Baby Boomers opting for smaller spaces simply because they are easier to maintain. Jason Koitz, a condominium realtor, shared in a report, "Probably 50 to 60 percent of my business in the last couple years has been these empty nesters." He cites lifestyle choices as one of the main reasons for the shift. With America's second largest consumer group changing their real estate choices it remains to be see how the housing industry will adapt.
While markets are shifting nationwide, it's important to note that home sales are still up in many areas and new construction is happening all the time. There is no sign that the traditional home buying experience is going away, but it does seem to be experiencing a slow decline. As purchasing behavior changes the markets that serve renters will continue to innovate to try and compete for market share. Concierge services like VeryApt will continue to target discerning renters, while major listing sites like Zillow and Apartments.com continue to use higher inventory to reach as many renters as possible.
For businesses in the industry, it will be crucial to follow these trends and develop new services to meet the shifting demands for housing options. Additionally, marketing efforts will need to be tailored to these emerging consumer groups.