The lending community has much to learn about Millennials and their approach to renting versus homeownership — and whether their current preferences will change as they age. Even though I am the father of two Millennials myself, I admit that I still have much to learn too. Professionals representing all aspects of the housing economy will have plenty of opportunities to invest in this generation in 2020 and well beyond.

The oldest Millennials, who will turn 40 this year, came into prime homebuying age amid the nation’s financial crisis and the subsequent run-up of home prices during the economic recovery. With that experience as a sobering backdrop, this massive generation has forged its own path when it comes to renting versus homeownership.

Certainly, an entire generation doesn’t move in lock step, but there are some really interesting trends emerging:

• In a November 2019 national survey by Apartment List, 12.3% of Millennial renters said they plan to “always rent,” up from 10.7% just one year ago.

• High student-loan debt remains a major contributing factor to the decline in young-adult homeownership, according to a 2019 Federal Reserve study. The U.S. currently has a student debt load of $1.4 trillion, which accounts for 10% of all outstanding debt and 35% of non-housing debt, according to the National Association of Realtors (NAR). While the amount of student loan debt has risen, the homeownership rate has fallen, and it has fallen more steeply among younger generations.

• Millennials will continue to move into homeownership, but at a more modest pace than generations before them due to affordability constraints. The time it takes to save for a down payment will keep a significant portion of millennials on the homeownership sidelines even as this generation accounts for the largest percentage of homebuyers (38%), according to NAR. It’s going to remain challenging for first-time homebuyers to qualify for a mortgage when you have loads of student loan debt.

• As the stigma surrounding renting fades, more people are choosing renting as a lifestyle choice due to its positive attributes such as the flexibility of making a short-term commitment and the freedom from maintenance and repair costs. Real estate investors have responded to this lifestyle choice with a wide variety of options in rental products from single-family homes in the suburbs to luxury high rises in urban centers.

• Fast-rising home prices make it cheaper to rent than buy in some metropolitan areas. Rent can be less costly once the actual cost of homeownership is factored in such as the down payment, upkeep and property taxes. The thousands of dollars in fees associated with a home purchase, if the buyer is using a mortgage, should be considered as well, especially if the buyer doesn’t plan to stay in the house for more than a couple years.

• The single-family rental (SFR) market gained significant traction during the housing crisis as real estate investors bought up distressed housing to renovate and use as rental properties. SFR in a short timespan has become a new, burgeoning asset class where both institutional investors and regular, small to mid-sized investors continue to be active participants.

• The multifamily market has been on fire for several years, and developers will remain active in 2020 although new construction starts and permits are expected to fall, according to CBRE Research. Apartment demand is projected at 240,000 units in 2020, roughly 20% less than 2019’s estimated 300,000 units, according to CBRE.

Here are a few things to watch for in 2020:

• Rent control initiatives: Several states and cities (New York City, Oregon and California) instituted rent controls in 2019 in an effort to address the housing affordability crisis. Real estate investors and lenders will want to keep close tabs on city and state regulatory initiatives and how it they will impact investments and real estate lending activity going forward.

• Suburban strength: For multifamily investors and lenders, the suburbs will be the place to be in 2020, according to CBRE Research, which predicts the suburbs will outperform urban locations with lower vacancy and stronger rent growth.

• Opportunities in midsized metros: Cities with less than 2 million people could provide exceptional multifamily investment opportunities, especially in cities where local government entities have committed to upgrading their urban cores and investing in quality of life initiatives, according to CBRE Research, but investors and lenders will need to remain cognizant that liquidity and overbuilding risks are higher in smaller metros.

• Unconventional housing plays: Housing models like “co-living” are taking cues from the co-working trend that has exploded over the past decade. Real estate investors and developers are eyeing shared housing as an option to address affordability. Co-living is a form of shared housing in which communal areas are shared and provides an alternative to conventional apartments.

• Accessory dwelling units (ADUs) are also growing in popularity as a way to address the nation’s housing affordability and supply crisis. In California, the state passed several new laws in 2019 to reduce restrictions on building ADUs with the goal of encouraging a greater supply of affordable housing. Investors (and lenders) should stay informed about the latest legislation involving unconventional housing plays as new opportunities for investment and financing present themselves.

• Young professionals making high salaries, but living and working in high-cost housing markets, are putting their money to work by investing in residential real estate in more affordable cities around the country. Turnkey online real estate platforms which include assistance with property management, have made residential real estate investing relatively easy, even for those with no experience. These real estate platforms enable investors to diversify their financial portfolios with the opportunity to get cash-flow with an appreciating asset.

• The economy: Lenders and investors already know that real estate is sensitive to the labor market. As 2019 drew to a close, employment and hiring was steady, consumer sentiment remained strong and the Federal Reserve hit the pause button on further interest rate cuts. The experts expect moderate GDP growth this year and that should result in generally good news for the housing market.

Conclusions

Young people have always made up a significant portion of the nation’s residential rental market and will continue to put their mark on the rental industry in 2020 and beyond.

Lenders in the private money and alternative financing space will want to stay up to date on the latest trends surrounding the residential rental market in order to reach millennials who rent, buy or are otherwise investing in the housing economy.