The rise of rentership: What this global real estate shift means for investors

Key takeaways:

• Economic factors including all-time-high house prices, elevated mortgage rates and record-low inventory have made it challenging for many people, especially first-time buyers, to purchase a home
• A range of lifestyle and demographic factors are also contributing to the global rise in rentership, and increasingly even those who can afford to buy prefer to rent  
• The global trend toward higher rates of rentership creates opportunity for residential landlords and investors in rental properties
• Real estate investment trusts (REITs) can be an effective way to gain exposure to this highly desirable segment
   

Across the globe, renting is on the rise

“Do I own, or do I rent?” It’s a personal decision we all make. However, the global collective trend is undisputed: Rentership is on the rise.

Today, there are more than 45 million renter households in the United States.¹ The 2020 Census revealed rentership increased 9.1% over the prior decade, a jump fueled in large part by the “wealthy renter” (those making over US$150,000, who could afford to buy but opt to rent). Wealthy renters rose 82% between 2015 and 2020. ²

This shift extends beyond the United States to the global stage. In Canada, the 2021 Census reported that over the previous decade, renters increased at three times the pace of homeowners, rising by nearly 900,000 households.³ In the United Kingdom, the number of first-time home buyers dropped to the lowest levels in a decade in 2023, reinforcing the country’s reputation as a “renter nation.”⁴ In countries like Germany and Switzerland, the concept of the “forever renter” is not uncommon, and rentership rates are among the highest in the world at over 50%.⁵

What’s driving this change? 

Economic factors including all-time-high house prices, elevated mortgage rates, and record-low inventory have made it challenging for many people, especially first-time buyers, to purchase a home. Renting is now cheaper than buying in more than 50 major US cities—in fact, in over 20 US major metropolitan areas, the monthly cost of owning is at least 50% higher than renting.⁶ A global shortage of available housing has exacerbated the issue; major economies are simply not building enough homes to keep pace with demand. In the United Kingdom, a deficit of 4.3 million homes has sparked commentators to label it the country’s worst housing crisis since World War II.⁷

Recent reductions in mortgage rates may ease the affordability constraint for some, but the obstacles remain insurmountable for many, including high financing costs and the challenge of saving for a down payment. A recent Zillow survey showed that median savings for prospective homebuyers was about $29,000, covering just 8% of the typical US home price (and well below the standard 20% down payment).⁸

The rise in rentership is also tied to a range of lifestyle and demographic factors, including increased value placed on flexibility and convenience, higher immigration, more people living alone and rising skepticism around the financial benefits of ownership. A survey in New York City found that 40% of Generation X renters thought buying a home was not a good investment, even though 78% said they could afford it.⁹ A 2023 study found that 46% of Canadian renters simply preferred to rent, citing benefits of “added services” and freedom from a long-term financial commitment.¹⁰

Capitalizing on rising rentership through REITs

This rise in rentership creates a profitable opportunity for the residential landlord. But for most investors, owning a portfolio of rental properties is impractical, if not impossible. Owning specialized residential REITs can be a much more effective way to gain exposure to this desirable sector with transparency and liquidity.

Investing in a professionally managed REIT portfolio can provide the benefits of expert, in-depth analysis across several factors:

• Superior asset quality: focus on well-located properties (i.e., central, walkable, accessible), those with sustainability practices and/or properties that provide amenities, such as fitness centers or communal spaces
• Use of revenue optimization software: machine learning algorithm that optimizes for occupancy and rents
• Additional revenue sources: consider parking, package lockers, Wi-Fi, pet fees
• Use of technology for increased customer satisfaction: examples include portals for payments and requests, automated reporting and analytics using artificial intelligence (AI) and machine learning, smart home integrations, virtual tours/showings
• Standardized purchasing systems: realizing reduced costs through competitive sourcing contracts, improved pricing and enhanced operating efficiencies
• Access to a range of capital sources: providing the necessary means to invest in building improvements and expansionary opportunities