Gen Z Is Taking Full Advantage of Falling Rents Due to COVID

Despite lingering unemployment, high student debt, and lots of pressure, Gen Z is finally grasping for freedom. A new report from Zillow finds that more than a third of Gen Z renters (ages 18-25) who relocated in the past year indicated that they had moved out of their family’s or friend’s home.

The primary factor driving these young renters out? Good deals.

Amid a fast-paced housing market, rental concessions in Boston, Chicago, Indianapolis, New York City, Philadelphia, and Washington, D.C. amounted to savings equal to two months free rent for a year-long lease (16.7%, or 1/6 off total rent).

The national trend is hardly different. Among the largest 50 markets in the U.S., the median savings was a strong 8.3%.

Concessions Are Changing Minds

Of all Gen Z renters who moved in the past year, 49% cited their move was motivated by the increased concession offerings. The median concession rate nationwide grew from 16% in January to 34% in October—an 18% increase in 10 months.

Markets with strong job opportunities for young professionals offer the largest share of rental concessions. For example, Washington, D.C. has the highest rate, with 62.4% of all listings offering some sort of concession. Second and third place went to Charlotte, North Carolina, and San Jose, California. Both metros had rates that exceeded 50% of all listings.

However, despite the deeper cut in rental price and incentives, 59% of Gen Z renters report spending more money per month on their new homes.

“What we’re seeing is that renters who might have been in a small apartment are instead looking at larger units—maybe a two-bedroom instead of a one-bedroom,” said Zillow premier agent Kenny Truong, founder of Fast Real Estate in the San Francisco Bay Area. “Some others are moving to a rental with a view or a yard for a similar price.”

Larger units explain larger spending. Gen Z renters are looking for the most bang for their buck.

“The effective savings rate is what renters would save on their typical housing costs over the course of their lease because of both lower rent prices and concessions,” said Zillow economist Joshua Clark. “Those savings could be enough to cover the cost difference between a one-bedroom and a two-bedroom unit. Plus, if these Gen Z renters who moved home retained their jobs through the pandemic, they’ve likely saved enough to afford a larger or more desirable apartment.”

Digital Tools Are Luring Young People

With a plethora of digital real estate tools at our disposal, the ones best at using them are young people, such as those ages 18-25. A recent survey by Zillow found renters were more likely to agree that 3D and unassisted technology would help with their home search, a number that has increased over time. More than 60% of Gen Z renters who moved in the past year say they wished more listings offered a 3D tour and agree that 3D tours would help give them a better feel for a space than static photos (64%).

Investors should pay special attention to this point, as it’s become increasingly obvious that using digital means of selling and buying real estate has become the new gold standard. With this data and more of Gen Z entering the market, simply adding a 3D tour to a home can make all the difference.

Top Concession Markets in the US

Washington, D.C.; Charlotte, North Carolina; and San Jose, California are the only major metros where a majority of listings gave concessions. The next best is Seattle with a concession rate of 49.4%, followed by Raleigh, North Carolina, at 48.9% and Minneapolis at 48.1%. Other notable mentions include Orlando and Atlanta. Both had rates higher than 45% in October.

Expect these cities to close out the year strong and move into next year at full speed as the economy continues to recover.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.