From Home Furnishing Business
Statistically Speaking: The Changing Profile of Renter vs. Owner Households
The Great Recession forced the goal of homeownership aside and renting became the viable alternative. Now safely out of the recession, many renters are choosing to stay put or better yet, keep the freedom to move.
America has long been a nation of homeowners believing that owning a home versus renting is the best economic decision and a goal most households should strive to attain. But for many in pursuit of homeownership and those already there, the Great Recession forced the goal aside and renting became the viable alternative. Now safely out of the recession, many renters are choosing to stay put or better yet, keep the freedom to move. Renter-occupied housing is at its highest level in almost 50 years (36.2 percent of households) and up 9.3 percent 2010 to 2017. This compares to owner-occupied housing only increasing by 2.4 percent (Table A).
According to an October 2018 survey from Freddie Mac, 78 percent of renters believe renting is more affordable than owning. Across all generations, reasons for renting include housing shortages, rising home prices, remaining fear after the last market crash, ability to pick up and move and a desire to live closer to work. Using data from the U.S. Census Bureau’s 2017 American Community Survey published in the Fall of 2018, Statistically Speaking details the changing profiles of the renter versus the homeowner.
With a large portion of the population aging to 65 and over, American household demographics have shifted in the seven years 2010 to 2017 since the last recession. The 65 plus age range now comprises over 25 percent of households in the United States (Table B). Ages 25 to 64 that made up 75 percent of households in 2010 have dropped to 70.8 percent in 2017.
Total household formations increased only 4.8 percent since 2010 as Millennials have been slow to enter the housing market, either as renters or owners. At the same time, as Baby Boomers have poured into the older age groups, the 65 and over group jumped 23.4 percent. Household formations for ages 25 to 44 slowed to a negative growth down 1.0 percent from 2010 to 2017, while ages 45 to 64 increased slightly by 1.4 percent (Table C).
For the furniture and home furnishings industry, as the Baby Boomers continue to age, their purchasing power will lessen significantly over the next 10 years. Table D shows the median household income of each age group in 2017. Not surprisingly, ages 45 to 64 have the highest median household income at $72,443, while ages 25 to 44 is 9 percent less at $65,879. The aging Boomers over 65 have median household incomes of $43,735.
Owner-occupied vs. Renter-occupied
As expected, renter-occupied housing leans toward younger age groups with 8.6 of all renters under the age of 25. This includes many rentals across college campuses and young adults just starting out. Discounting these young renters and looking only at the over 25 age groups, apartment rentals are increasingly growing into a broader mix of old and young. For households age 25 years and older in 2017, about half of all renters were age 45 and over. This compares to 75 percent of owner-occupied housing (Table E).
Comparing the change in number of owner-occupied units to renter-occupied units over seven years, renter households went from 34.6 percent of total housing units to 36.1 percent - increasing 3.7 million units from 39.7 million to 43.4 million households (Table F).
As would be expected, families contribute to the higher average number of occupants in owner-occupied households, but the difference is not significant compared to renter units. Owner-occupied units in 2017 had an average household size of 2.72 persons, while renters had a household size of 2.51. As more single people have turned to renting, the majority of homeownership is narrowing to mainly families. (Table G).
As would be expected renter households have a greater tendency to contain only one occupant compared to owner-occupied units, 37.1 percent of renters versus 22.7 percent of owners. But over 35 percent of both renter and owner owned units have three or more occupants (Table H).
One of the biggest differences in renter and owner households is that owner-owned residences are primarily married couple families, 60.1 percent compared to 27 percent of renter housing. Likewise, almost half (48.2 percent) of renter households are nonfamily and unrelated individuals compared to only 26.8 percent of owner residences (Table I).
In addition to increasingly limited new housing construction, the housing industry is facing a future where over half of all owner and renter occupied units are approaching 40 years old. Between 2000 and 2009 new housing construction began to diminish and completely stall due to the market crash. Although renter-occupied units were in high demand during and after the Great Recession, apartment construction failed to pick up and was only 10.9 percent of all units during the same time period. Since the recession ended in 2009, only 5.1 percent of all owner-occupied homes and 5.6 percent of all renter units have been newly built (Table J).
The combination of Millennials slow to form households (renting or buying) and Boomers aging rapidly has significant implications on the furniture industry going forward. With the job market improvements, it appears that though they have a lot of catching up to do, Millennials are poised to make their mark on the home furnishings industry just as the Baby Boomers will be lessening their hold over the next 10 years. There are some signs many will retreat to the suburbs like their parents to own homes and raise families. Others, whether or not they delay marriage, have grown to like the freedom and convenience of apartment living and are a growing segment. Both groups will challenge the marketing efforts of retailers in the future.
In an upcoming article of Statistically Speaking we will expand on the renter/owner profile and look at the economics of these renters and homeowners and how much they are really paying in monthly costs compared to their incomes.