Homeownership for many is a rite of passage into adulthood. Or at least, it was. The ever-rising cost of real estate, combined with the rising cost of living, stagnating median income and a debt-entrenched Millennial generation, is threatening to blow up the whole marriage-to-homeownership model that has long been the standard in the U.S.
CivicScience data from 2019 alone clocks current homeowners at about 63%, which aligns with recent data from the U.S. Census Bureau. However, things look drastically different for young adults ages 25 to 34 — only 45% own homes, while 38% rent, and 12% are still with mom and dad.
That’s not to say young adults don’t want to buy homes. In fact, most do. CivicScience data show that 81% of current Gen Z and Millennial renters (ages 18 to 34) have intentions of buying a home at some point, whether that’s in one year or more than five years time.
It’s true that young adults are waiting longer than their parents did to couple off, have kids, and buy homes; but for many twenty- and thirty-somethings, buying a home is riddled with roadblocks. Coming up with the down payment or obtaining a mortgage on bad (or absent) credit history makes renting for life seem like the only option.
Alternative Ways to Finance a Home
That’s where new fintech startups, like Divvy, are stepping in and offering alternative ways for young people to finance a home, such as rent-to-own financing. There are different types of agreements, but in general rent-to-own is pretty much how it sounds; you pay monthly rent on a property (either to a finance institution or private seller) that you intend to buy, and the accrued rent money goes toward the total property cost.
The biggest incentive for renting-to-own is that over time your rent funds a down payment, typically over the course of three years. Or, you have time to build up the credit you need to take out a mortgage. Either way, a mortgage is still required, but associated homeownership costs become more feasible.
A CivicScience survey of more than 2,000 U.S. adults shows that less than 5% have had or currently have a rent-to-own home financing agreement, while 11% are interested in the model.
That’s low, but drilling down the data shows that rent-to-own home financing may be promising. A solid 32% of current renters like or are interested in it, while 21% aren’t even aware it exists (i.e., there is room to grow).
Young Adults Show Greater Interest
In the high-stakes housing industry, the question is whether or not rent-to-own financing will scoop up a portion of the 80% of current Gen Z and Millennial renters who plan to one day become homeowners. The survey indicates that current adoption rates of rent-to-own financing are dispersed amongst 18- to 64-year-olds, but interest peaks with 24- to 34-year-olds; close to 20% of this age group say they are interested.
To note, the data doesn’t reveal a discrepancy between single or married people — both show equal levels of interest, which puts an interesting spin on life stage and home ownership. Single people may be equally interested in buying homes as married people, but are less likely to take the dive into homeownership (as explored in past research), probably because they are financially less capable of doing so on a single income.
Survey data also reveal a heightened interest in rent-to-own home financing amongst city-dwellers, as well as those who earn under $50K per year.