While millennials continue to make up the largest share of renters, they are entering the typical homebuying years. Gen Z makes up the second-largest share of renters but the fastest-growing segment.
Rental investors might be surprised by differences in the demographics' dwelling habits, which may seem counterintuitive when compared to one another.
As RentCafe researcher and author Sanziana Bona puts it, "The downtown life in big coastal cities is so last decade."
The latest data published on the RentCafe.com blog shows small midwestern and southern towns are beginning to trend among Gen Z renters.
The number of Gen Z renters jumped by 36% in 2020 compared to the prior year. The number of apartment applicants from every other generation simultaneously decreased. Thus, in order to identify what types of locations Gen Z prefers, RentCafe ranked cities by the highest share of applications for rent from this age group, as well as the highest YOY increase in Gen Z applicants.
The cause for new renters' preferences is not only that tiny towns in the heartland are more affordable, but also they offer "a vibrant local scene that feels authentic and closer to home for these young adults who are starting out in life in times of great uncertainty and change," Bona reported.
While millennials still claim the top spot for renters at 48%, quickly increasing Gen Z already owned the second spot. Some cities in 2020 experienced sharp renter increases for Gen Z, making them the trendiest cities for young renters.
Topping the list is Greenville, NC.
Nine of the 20 cities on this list are located in the Midwest and eight are in the South—far from the coastal cities previously favored by millennials, according to the study.
They mostly are towns with fewer than 300,000 residents, a relatively low cost of living, and apartment rents less than the national average, which is around $1,400. And Gen Z is flocking to these places in large number.
"In 18 of the top 20 trending locations for Gen Z renters, the share of rental applications submitted increased by at least 50% throughout the course of just one year," the researchers report.
Of course, they note, the findings must be interpreted in light of a year heavily affected by a national health crisis.
"The economic and public health consequences of the COVID-19 pandemic have likely influenced Gen Zer’s preferences for less populated, more affordable cities/towns in Mid-America and outside of the large southern metro areas e.g. Atlanta, D.C., Charlotte, Houston, than millennials," according to Ronnie A. Dunn, Associate Professor of Urban Studies at Cleveland State University.
University of Oregon Sociology Professor Jill Ann Harrison tells Bona that economic factors are leading people to look at smaller, more affordable markets and see their potential. Harrison concluded that one of the main benefits people get is “much more space for their money” in these small and mid-sized cities compared to what they do in big, coastal ones.
“Younger people are willing to trade off living in a crowded, bustling city for having more space at home. Many of these Heartland places are also much closer to their hometowns, too, enabling a tighter intergenerational connection which is more valued among younger adults today than with Gen X.”
The full study along with a complete list and graphics is available at RentCafe.com/blog.
Note: This spring, the Five Star Institute, with moderator Jeffrey Tesch, CEO of RCN Capital, presents the 2021 Single-Family Rental Summit (SFRS). The event is Wednesday, May 12 at Four Seasons Resort and Club Dallas at Las Colinas.