U.S. Markets closed

Millennials are calling BS on the benefits of owning a home

Vuyo Radebe

Until recently, residential property seemed to have escaped the waves of change that have transformed so many other industries.

For hundreds of years we’ve had a sector in which a feudal landlord-tenant relationship has endured. Just like centuries ago, a tenant is generally regarded as a subordinate to the landlord, who allows a tenant to occupy a property under strict conditions of a lease in return for extracting a rent from them.

This mindset exists across the property industry—the managing agent for my flat in London still sends me forms labeled “Tenant Demands” rather than invoices.

But the home rental market is starting to go through a quiet revolution, and it’s gathering momentum to catch up with the wider world of goods and services.

My colleague and strategy co-lead Jamie Clyde and I have iterated this in our own residential projects, where tenant-focused value has become the central anchor in devising a unique selling point.

This means that more and more landlords are starting to embrace a new model in which the “customer” (i.e., the renter)—not the landlord—is king.

Even referring to the tenant as a “customer” launches us into a completely new paradigm. It creates many new opportunities to improve the lives of tenants while significantly improving the returns for the property owner. I’ve identified three main areas of change in the market, which renters and landlords alike would be wise to tune into.

Where the heart is now

 We’re witnessing a reevaluation of what we get from owning a thing. First up, we have the basis of the rental proposition. As businesses increasingly reject traditional long leases in favor of shorter ones, the commercial property sector is leading this shift. It’s becoming more common that tenants—er, customers—want an all-in flexible package that includes rent, rates, utilities, internet, and even furniture, all for a single monthly fee. This differs from the well-established serviced office package, in which a commercial renter signs up for a full-service space at various price points. Here, the customer has the freedom to create a custom designed office, while benefitting from full services.

Residential landlords and rental companies, such as the community-focused corporate rental company Tipi in West London, have translated this to the residential sector by doing away with security deposit requirements, providing neighborhood caretakers, and partnering with brands for local events so that renters are paying for a community experience that goes beyond the rented space.

Deposits in particular are a major barrier for customers wanting to rent a property. Realizing this, progressive landlords have copied other industries that have cracked customer risk. Thanks to sophisticated credit and fraud checks and new types of insurance plans, these days you can buy a new mobile phone, furniture, or even a car on credit without putting down a deposit. In the same trend, more landlords now offer tenancies with zero deposits.

Where renters are being considered as customers, landlords have also had to realize that a high level of service is important. This is why many forward-thinking landlords now offer 24-hour maintenance helplines and apps for customers to manage their tenancy and report issues.

All together now

Second, we must look at how our definition of community is changing. For the past couple of years, terms like “placemaking” and “community” have become the buzzwords in the property sector.

In order to maintain occupancy, a commercial landlord is required to offer a bigger range of amenities that enables renters to attract and retain their own staff.

These include features like showers, bike storage, cafes, retail outlets, even organizing a program of events. Rather than just running building operations, the commercial asset manager is now a community curator.

And residential landlords are following suit. In apartment and house rentals, landlords are likewise starting to offer a range of support services like a concierge, dry cleaning, gym, social and common spaces, and a calendar of social events for residents.

As landlords start to manage different communities of people, they have created specialist propositions which have spawned new classes of assets. Student accommodation and senior living are now well-established sectors—with the rise of the co-living trend, they are sometimes packaged together. We can expect to see more target groups like these emerge as developers and property managers identify more customer groups, and craft new formats to appeal to them.

Unfortunately, this market innovation can be incredibly damaging and problematic, as we saw recently in London. The city’s mixed-income housing development plan was discontinued after reports of segregated playgrounds, and separate entrances, for low income renters and tenants who paid for more expensive properties.

Generation rent

The third aspect of change is the concept of ownership itself.

In the 1950s, baby boomers strived to own a car. Then Gen-Xers sought home ownership in the 1990s. After a 30-year global property boom, millennials have become “generation rent” as they struggle to buy a place of their own.

But it is not just the cost of housing that limits millennials’ desire to buy home property. We’re witnessing a reevaluation of what we get from owning a thing.

Consumers in this generation are simply not interested in waiting and saving before they can buy things. Spending money on experiences—now—is deemed more fulfilling than waiting to accumulate enough wealth to acquire possessions.

Why own when you can share and rent? With platforms like Uber and AirBnb, the gig economy has unlocked a new ability for us to benefit from a property or a service without investing in ownership. More technology developments like self-driving cars will accelerate this further.

As IKEA’s head of global sustainability Steve Howard said, “in the West, we’ve probably hit peak stuff.” Millennial consumer habits seem to confirm this, prompting more companies to offer access to new options—such as subscription furniture, for example—without having to commit and miss out on the next emerging trend or product.

The meeting-point

So, what does this mean for renting and home ownership?

In the past, rental and ownership have been seen as two separate entities, worlds apart. But why can’t they become much more integrated? Why can’t they be seen as two parts of the same process? If we can rent before buying furniture, and if we can lease different cars before we settle on the model we want to buy, why can’t we do the same with our home? I don’t see why we can’t simply take a lease and overpay the rent to build up a deposit, which over time would give us the opportunity to take over ownership.

Perhaps the real question for today’s renters’ climate is: What exactly should we be owning?

If developments increasingly come equipped with shared spaces, amenities, and offer a range of services beyond basic tenancy, wouldn’t it be more attractive to take a share in the overall development, rather than buying a single property unit?

This enables tenants to acquire and grow an asset. It also allows them to become financial stakeholders in their overall community environment and ecosystem. This redefines the meaning of home ownership as we know it. It potentially changes the very mechanism of ownership.

Instead of raising a deposit and debt before paying it off, customers would simply earn into the equity of their development, kind of like contributing to a pension fund.

If landlords want to stay competitive and relevant with today’s residential property sector, they need to commit to three huge changes. They need to develop a much broader skill-set in order to deliver a satisfactory range of integrated services to their customers (such as community management); they need to have the technology that underpins these services (such as billing capability for the different types of services); and finally, they need access to new financial services, from credit management to new ownership schemes.

In this customer-driven market, the onus is on landlords to evolve apace with consumer culture, become much more active, and more imaginative. The residential property sector is seeing a significant shakeup, but one rule holds true: The customer is still right.

 

Sign up for the Quartz Daily Brief, our free daily newsletter with the world’s most important and interesting news.

More stories from Quartz: