Why Long-Time Renters are Buying New Construction

As a long-time renter you often spend years trying to determine whether or not to buy a home and take on a mortgage. In the meantime you are already paying a mortgage… just someone else’s. Worried about the upkeep and repairs that come with homeownership? You’re already paying for those things too, as well as your landlords vacation and their new car. You have all the responsibility of a mortgage without the benefit of building equity. No investment, no rewards.

However, renting a home for an extended period of time does provide you with one valuable commodity, an education. You become familiar with the complexities of homeownership and the problems you might encounter, while not being answerable for their solutions. In my experience, this is precisely the reason that long-time renters often choose to purchase a New Construction home.

Similar to owning a brand new car, buying a brand new home gives you quite a few years to breath easy, affording space to anticipate and save for future improvements and repairs. Buying a New Construction home also allows for a magnitude of choices, a privilege that you never enjoyed as a renter; colors, flooring materials, energy-efficient features, cabinetry and appliances to name just a few. But possibly most critical of all, you have the opportunity to choose location, design and floorpan that better suits your lifestyle. All in all, for long-time renters, the decision to purchase a brand new home is a wise one.

Home builders have realized for quite some time, that the long-time renter is a key demographic, and have realigned business models to accommodate. Entry-level casita homes, smaller lots with less maintenance, multi-level condominiums and townhomes appeal to the long-time or millennial renter.

Suzanne De Vita for RIS Media explains the industry’s shift in mindset from the move-up mega home to the first-time buyer.

It’s About Time: Builders Responding to Renter Rush

By Suzanne De Vita
Will they, or won’t they?

Whether millennial renters would make the transition to homeownership has been hotly debated since the housing crisis—and now, there is more evidence pointing to the affirmative.

According to a report by the Wall Street Journal, home builders are starting to double back on starter home production, recognizing valid demand among millennial renters eager to enter the housing market. More builders, cited in the report, are constructing lower-priced homes with less square footage, taking crucial first steps toward adding supply. The average home built in 2016, according to the Census Bureau, was 2,634 square feet—a downsize.

“2016 marked the end of an era that began in 2009 when homes got bigger and bigger with more amenities,” said Rose Quint, assistant vice president for Survey Research at the National Association of Home Builders (NAHB), in a statement at the turn of the new year. “I expect the size of homes to decline as demand increases from first-time buyers.”

“Builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor,” said Granger MacDonald, chairman of the NAHB, in a statement on the Index.

Millennials have clear-cut aspirations regarding homeownership—and, now, they’re becoming reality. An analysis by Trulia of the latest Census housing update reveals homeowner households formed at double the rate of renter households in the first quarter of 2017—the first reversal of the gauge in 10 years. Millennial renters are not just ready to become homeowners; they’re making it happen.

On the construction side, the priority shift couldn’t come sooner. A recent inventory update, also from Trulia, shows starter home supply fell in the first quarter of 2021, kept off the market—and out of reach of first-timers—by homeowners hesitant to list after losing equity in the crash. New starter homes would open up an alternative route.

The addition of more reasonably-priced homes would also lower the affordability barrier—one of, if not the, most considerable concerns for millennials. Many are caught in a catch-22 of high monthly cost obligations, including rent and student loan debt payments, with unsustainably low earnings—all having an adverse impact on their ability to save for a down payment.

Over-building was one of many underlying contributors to the downturn, but according to the Wall Street Journal report, a repeat scenario is unlikely. Builders—finally, and simply—are responding to demand.

It’s about time.