When the average student loan debt rings in at more than $30,000, it’s unsurprising that many young adults’ debt-to-income ratios prevent them from securing a mortgage or buying a home. In fact, according the National Association of Realtors:

 

 

That age range reveals that it’s not necessarily just recent graduates feeling the impact of their loan debt. That debt can follow individuals for many years as they work to pay off the loans. In addition, up to 20 percent of student loan holders owe more than $100,000, and 60 percent of borrowers don’t expect to pay off their loans until their 40s.

 

When these individuals apply for mortgages, lenders turn away a significant number of them because their incomes don’t offset their debt by a wide enough margin. According to CNBC:

“Almost one-fifth of people with student debt who apply for a mortgage…are denied because of their ‘debt-to-income ratio,’ what a person owes versus how much they make, according to the National Association of Realtors.

The median income for student loan borrowers is $59,746, according to analysts at the Harvard joint center. For borrowers under 30, the average monthly loan payment is $351, according to Student Loan Hero.

 

In short, 20 percent of borrowers who would like to own a home simply can’t qualify for a mortgage.

 

What it means for multifamily

Without access to a mortgage, these borrowers are left with a few options, including living with family or renting.

According to April 2018 research from Freddie Mac, more households intend to continue to rent due to financial concerns (and student loans factor into those concerns for many people):

“Although the profile finds a growing number of renters believe their economic situation has improved compared to last summer, it also finds that cost is increasingly driving rental decisions. While 67 percent of renters stated they will continue renting for financial reasons, that number is significantly higher for Millennials (aged 21-37), jumping 15 points from 59 percent in 2016 to 74 percent. Multifamily renters (versus single-family renters) expressing this view jumped eleven points – from 57 percent in 2016 to 68 percent today.”

In its 2018 Profile of Today’s Renter, Freddie Mac highlights some additional detail about renters’ current mindset and future plans, including:

·  22 percent of renters feel they never make any progress reducing their debt
·  20 percent of renters have no interest in ever owning a home (up from 17 percent last year)
· 35 percent of baby boomers have no interest in owning a home (compared to 7 percent of millennials)

That last point highlights an interesting trend: Younger people tend to rent out of financial necessity while more older people rent by choice.

Regardless of age, a strong majority of renters will continue to rent for the foreseeable future. In addition, the majority of these renters report having a satisfactory experience with their rental home. So much so that even a rent increase won’t prompt most of them to move:

·  66 percent report feeling satisfied with their current rental experience
·  64 percent intend to stay in their current rental despite rent increases
·  45 percent plan to rent in a multifamily complex vs. a single-family home

Happy renters are, of course, great news for multifamily properties. It shows that we’re doing something right.

From PointOne Holdings’ perspective, a positive renter experience is part of the value we add to each multifamily property we own. Attracting great renters is only one piece of the puzzle, and we work hard to give them the environment, amenities and experience they want in an effort to retain them for the long-term.

Whether they rent out of financial necessity or by choice, the research shows that renting is no longer a short-term prospect for many people. For multifamily properties, it makes sense for us to deliver a feeling of home and community for the people who could be with us for years. We’re not just a stop along the way to home ownership anymore – we’re the destination.