Millennials And GenerationZ The Break Between Buying And Renting A Home

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Spain is a country of homeowners, at least until now, but will it continue to be so in a decade? Industry experts believe that renting will gain followers over the next few years, some because they will choose that way of life, others because they will have no choice but to do so due to the impossibility of accessing the necessary financing to be able to become owners.

For the moment, millennials have already become the first generation to significantly consolidate the rental option, since according to the data provided by Atlas Real Estate Analytics to elEconomista , the percentage of people between 30 and 44 years old who live rent is 34.07% and it is expected that, within four years, in 2025, this ratio will reach 40.33% . If the forecasts are met, this would mean an increase of 64.9% in just one decade, since in 2015 only a quarter of the population of the same age lived in rent.

This trend is further intensified if we look at what is known as generation Z , since, in this case, it is expected that 63.4% of the population under 29 years of age will live in rent in 2025 . Currently, this generation already gives a higher priority to rent than to purchase, with a ratio of 58.2%.

The percentages totally change if you look at the two generations before millennials , Gen X and Baby Booms . Thus, according to data from Atlas Real Estate Analytics, of the population between 45 and 64 years old, barely 13% will live under the rental formula in 2025, compared to 15% in 2015. In the case of people over 65 years the rent will be anecdotal with 6%.

Great rental tour in Spain
“The rental trends are evolving towards a behavior similar to that of the great European powers such as Germany, which has higher percentages of the rental population than those found in Spain, so there is still great potential for growth to reach figures such as the of these countries “, explains Alejandro Bermúdez, CEO Atlas Real Estate Analytics.

But for this to happen, it is necessary to expand and develop a new park of flats for rent, since the one that currently exists is insufficient and in many cases obsolete.

“We have identified in the Build to Rent market a need to promote up to 991,545 homes to reach the average European rental population, and 1,841,440 to reach the average of the main powers such as Germany, France or Italy “, points out Bermúdez, who assures that this new offer is aimed mainly at young people, who” either due to lack of resources, or due to a cultural issue do not want to acquire a home that they own. In this case,we consider that it is mainly a question of inaccessibility, since, culturally, Spain has always bet on property “.

Difficulties to finance
In fact, although in most cases the payment of the mortgage payment is lower than the rental income, many young people cannot access the purchase due to the impossibility of paying the entrance fee , something that is not within reach. of all, especially if they do not have family support to help them collect 30% of the amount of the operation.

As of today, the most normal thing is that the granting of a mortgage is for 80% of the approved appraisal value of the home to be purchased. Therefore, the buyer needs to have their own funds that allow them to meet the remaining 20% ​​of the value of the acquisition that is not financed by the bank.

You must also take into account the payment of VAT, which in the case of a new home is 10%, or the Property Transfer Tax (ITP), if it is second-hand, in addition to notary or registry expenses.

The problem of access for young people is reflected in the statistics, since only 8.17% of the total mortgages signed in 2021 correspond to those under 35 years of age, according to Hipoo . A figure that joins the percentage of those under 35 who have applied for a mortgage, which has decreased by 2% compared to 2020, to 43%.

According to Hipoo, of the total number of applications made by people under 35 years of age (in an indebtedness ratio of no more than 35%), the percentage of young people requesting more than 80% of financing in 2021 stands at 54.19 %, 6.5 points higher than in 2020. Those who request between 80 and 90% of financing, the percentage has been 21.76%, surpassing the 18.89%, from last year. And those who request more than 90% financing represent 32.43% in 2021 compared to 28.8% in 2020.

Ricardo Sousa: “84% of young millennials and generation Z want to buy in the future”

But despite the barriers to buying a home, young people do not lose hope. In this sense, Ricardo Sousa, CEO of Century21, assures that when they work with the youngest, “the future perspective continues to be the purchase of a home.” “84% of young millennials and generation Z want to buy in the future and have that feeling of ownership that is something very cultural in Spain. If we go to France the dynamics are different and even with inverse figures.”

The expert explains that in his real estate network “more than 70% of the operations we do with young people are for sale.” Sousa also points out that this part of the population has an average budget of less than 700 euros per month for the mortgage payment and that their access to the shopping market has, in most cases, family support to be able to provide the necessary initial savings.

“In this way, for the rent to be competitive it should be below those values, and even so we would be talking about a high effort rate”, specifies the CEO of Century21.

Along the same lines, the economist Gonzalo Bernardos, believes that young people want to be owners. “That does not mean that they want to buy when they are 25 years old, but nobody wants to live in worse conditions than their parents and what they have seen at home is that the family owned a home,” explains the expert, who points out that it is true that “The desire to buy has been delayed, because in life everything has been delayed.

Before, a young person was the one under 30 years old and now the one under 40 years old is so. In addition, there have been two major crises in the middle. The millennial generation, which I call the jinx generation, has caught both of them, so with economic circumstances worse than those of their parents, they resign themselves to renting. “

Bet on this model
However, not everyone chooses rent out of obligation, there is also a part of young people who prefer this way of life. This is explained by Borja Varela, Director of Alternative Assets at Colliers International Spain, who recognizes that traditionally “due to our culture, Spaniards have tended to buy a home as a defensive method.”

But the purchasing trend among young people is “radically changing because they do not have the capacity to save that there was before, since wages are not in line with the price of houses .” However, the manager assures that a part of the young people what they are looking for in the rental is flexibility.

“The world of work today is not the same as it was before. Temporary contracts are the order of the day and it will be very normal in a ten-year professional career to have gone through six companies, when our grandparents or our parents worked in one or two companies in his entire life, “says Varela.

To the less stable and more flexible life that millennials have experienced and that generation Z will undoubtedly experience, we add “the international concept, which Americans call sharing, which consists of sharing everything.”

“With the Covid there has been a lapse in this sense due to the health issue, but there is a very clear trend towards this concept,” says the Colliers expert, who highlights that the new rental projects already have many common areas with spaces for coworking to be able to work from your building, as well as a gym or meeting areas.

“With all this we see a very clear trend of buying towards rent due to sociodemographic factors and current economic factors that are emphasizing it, such as the economic recession and the restriction of banks to mortgages due to fear of delinquency and additionally the shortage of professional quality product for rent, “says Varela. All this converges in the appearance of new housing solutions such as coliving, which are still products that are made ad hoc according to age ranges.

“The student residences are for a university audience. Coliving goes to a higher income range, since it has its nature in an urban location and is for young professionals. If we go to BtR projects they are residential concepts for families young people “, explains Varela, who highlights that now apartments for the elderly are also being created, to cover the niche that ranges between retirement age and 82 years, the average age of entry into the nursing home in Spain.