I’ve talked with dozens of friends and peers about homeownership over the past few years. Many of us should, on paper, be gearing up to move from renting to owning — we have “good” jobs, are in our early 30s, some are thinking of starting families, etc. Yet, almost everyone I know — myself included — continues to rent.
Unsurprisingly, the biggest impediment to homeownership is affordability. Young professionals are riddled with student debt, paying too much in rent to save for down payments, and unable to lock in loans with favorable rates (especially today).
Hundreds of proptech businesses have emerged to help young professionals buy homes (rent-to-own, down payment assistance, “buy before you sell”, fractional ownership, etc.) I discuss some of these models here. While many are directionally and theoretically helpful, not all actually unlock homeownership at scale.
Amid this rise of “homeownership affordability” startups, I’ve been considering two questions.
Question One: What fundamentally drives consumer desire for homeownership? Is it possible that we’re amid fundamental societal shifts (beyond inaccessibility) causing the prolonged renting epidemic?
The two main generations under consideration here are Gen Zs and Millennials, ages 18–25 and 26–41, respectively. These cohorts of consumers are, or are soon to be, of home buying age — and 82% of them want to buy property. (Some research actually put this closer to 90% — s/o to Meagan Loyst, founder of Gen Z VCs, for the data share).
Gen Z and Millennial motivations for homeownership can largely be divided into two categories: social/emotional and economic.
Like generations before them, 59% of Gen Z’s and 65% of Millennials view home ownership as a “top signal of success”. (For context, homeownership goes head to head with having a great career in the “success signaling” category, which sits at ~60% for this age cohort). Other social/emotional motivations for homeowners included alignment with starting a family, having control/freedom over one’s space, and establishing a sense of place, belonging and community.
The main and obvious economic motivation for homeownership is storing and growing wealth. Even amid economic downturns, residential real estate is generally a less volatile, long term investment. Importantly, this is not just a historical truth, but also something consumers know and believe, as noted in the diagram below. (It’s worth noting that beyond owning an appreciating asset, for many Americans homeownership is also a forced mechanism of monthly saving, leveraging capital, and generating tax advantages.)
TLDR — people still want to own homes, often to build wealth and have an emblem of life progression, success, and belonging.
This ties into question two: Are there mechanisms of achieving these homeownership “benefits” without actually having to own a home in the traditional sense?
Achieving the social/emotional benefits of home ownership via other means is a bit nuanced. One could argue that as consumers increasingly exist in digital worlds, there are new methods of virtual “success” signaling. NFTs are an early — but prime — example of this, often conveying some level of wealth (or willingness to spend) in addition to personal preferences, identity, style, etc.
Gen Z’s and Millennials also embrace new methods of creating community. Many Gen Z’s and millennials feel comfortable building relationships virtually, especially around specific interests and identity groups. While these groups often have IRL commonents, their lifeblood is online (whereas our parents may have relied more heavily on building bonds based on physical proximity — e.g. a neighborhood — to cultivate a sense of belonging).
Achieving the economic benefits of homeownership, without owning a home, are more straightforward. There are a multitude of platforms that enable consumers to fractionally invest in single family residential real estate. Some key players include Landa, Fractional, Fintor, Roofstock, and Arrived. Residential estate, as opposed to other asset classes, has the benefit of deep consumer familiarity. (While you may have to justify crypto investing to your parents, you certainly don’t have to explain the economic importance of buying a home). Interestingly, many of my peers are opting to fractionally invest in residential real estate via the aforementioned platforms before buying homes of their own outright.
So what? A few, closing thoughts.
First, while I don’t doubt that most people want to own homes, I do think there’s a level of convenience that Gen Z’s and Millennials have grown accustomed to that is highly misaligned with owning and managing a physical asset. I remember reading a post about how tech companies have effectively taken the place of our moms — they bring us food, do our laundry, and drive us around. We’ve grown accustomed to immediacy and convenience. (This sentiment is well represented in the unprompted response from my 25-year-old sister regarding if she’d want to own a home). Many others I “surveyed’’ echoed this sentiment.
While my sister, like most, will likely buy a home when she can afford to, she will also expect it to be as effortless to manage as possible. We’ve backed several companies that align with the thesis of easing home maintenance and ownership, such as Owners and Naya Homes, the latter focused on second home property management.
Second, I personally believe that, for many millennials, the fundamental aspiration of homeownership isn’t so much a deep desire to buy or own property, but rather a strong aversion to renting (especially in today’s market). This consumer preference lends itself well to rent-to-own models that are shorter term, or enable consumers to accumulate fractional ownership or equity in the event they don’t opt to buy. We’re a fickle generation who may wait longer to lay down roots in one place, but we don’t like lighting money on fire every month.
Third, on a more ethical note, I have some questions/concerns around consumers investing in the homes of other consumers. This hesitancy almost feels unfair — you’d think that humans, as opposed to massive property managers, would be more compassionate landlords. But, many of the platforms facilitating these fractional transactions are incentivized to maximize returns, realizing full well that their users view real estate as an investment, and nothing more. I pulled the below from one of the many fractional, single family rental real estate investing apps. As you can see, it prides itself on removing rent concessions and jacking up prices. It’s hard not to think about the families on the other end of that.
In short, we’ve turned a fundamental human need — shelter — into a mechanism for maximizing ROI. Not to say we haven’t done this before as a society for other basic needs, but likely requires further consideration (and possibly more regulatory attention).
As always, if you’re an investor, founder, or anyone thinking about the above, I’d love to meet: email@example.com.