When billionaire investor Warren Buffett speaks, people tend to listen. The Oracle from Omaha said this during an interview on CNBC Feb. 27: “If I had a way of buying a couple hundred thousand single-family homes–and had a way cialis super active of managing them–I would load up on them, and I would take mortgages out on them at very, very low rates. …That’s as attractive an investment as you can make.”
Buffett was right on the money: Profound changes in the housing market have reversed decades of increases in homeownership rates and pushed upward the number of people needing or wanting to rent. The 2011 housing report from global financial services firm Morgan Stanley puts it this way, “The combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live…moving the country toward a Rentership Society.”
Mattress sales have long been tied to the housing market, with the purchase of a new home being a prime reason people buy new bed sets. What does the rise in rentership mean for the mattress industry?
The emergence of a rental nation
First, let’s look in more detail at recent changes in the U.S. housing market. Prior to the real estate crash of 2008, eager homebuyers viewed houses as smart investments–money machines with ever-increasing worth. Financial institutions helped fan the flames of acquisition, giving easy credit, requiring little or no down payment and, in some cases, mandating only the most cursory of documentation. Oops. Cue the bursting of the housing bubble. Many new homeowners suddenly found themselves “underwater,” with mortgages higher than their homes’ deflated market values.
Today, the pendulum has swung the other way. Financial institutions, now risk-averse, have tightened credit. Sizable down payments are the norm. And only those with stellar credit need apply. Many would-be and former homeowners have been forced into the rental market. Another factor influencing renting is the desire for mobility. With high unemployment rates in many states, people want the flexibility to quickly relocate for job opportunities. These societal changes all point to the likelihood that weíll continue to see higher numbers of renters than in the recent past.
Homeownership in the United States peaked in 2006, when 69% of Americans owned homes. Today, 3 million more households rent, and the homeownership rate has fallen to 65.4%. According to the Washington, D.C.-based National Multi Housing Council, 32% of the U.S. population lives in rental housing, compared with 57% who live in owner-occupied housing. (The remainder of the populationófinancially unable to rent or buy or taking care of relativesólives with family.)
In the past several years, there have been more starts in multiunit housing than single-family residences. In the first quarter of 2012, starts of multifamily units were up 27%, while single-family starts rose only 16.7%.
Driven by demand, rents have risen. Reis, a New York-based provider of commercial real estate and market information, reports that rental vacancy rates declined to 4.5% in the fourth quarter of 2012, the lowest vacancy rate in more than a decade. Today, the average monthly cost for a rental property in the United States is $1,048. Forrent.com and Homes.com data show the average rent for a two-bedroom apartment ranges from $653 in Greensboro, N.C., to $1,652 in Orange County, Calif. In New York, a two-bedroom place in a desirable part of the city can set a renter back $6,000 a month.
Even with rising costs, many renters, including former homeowners, consider renting a more affordable option. Buying a home brings with it the costs of insurance, maintenance, property taxes and other items. And in a tough employment market, job seekers find that homeownership anchors them: Homes on the market can languish unsold for months–even years.
Daniel Gross, a veteran journalist and columnist for The Daily Beast and Newsweek, says, “One of the problems… has been wildly disparate employment situations in different places–it’s 14% (unemployment) in Las Vegas, 3% in North Dakota. The fact that a lot of people owned homes with underwater mortgages meant that a certain chunk of the population couldn’t pick up and move from places where jobs are scarce to places where jobs are plentiful.”
A permanent shift?
If economic indicators prove correct, weíll be seeing a growing renters market, possibly through 2020.
But have we permanently become a renter nation? Jack Kern, managing director of Germantown, M.D.- based Kern Investment Research LLC, doesnít think so.
“The issue of ‘renter nation’ is a phenomena that came about more as a headline in the media than the reality that younger people naturally rent and many people who lost homes to foreclosure had to become renters,î he says. ìAs the economy continues to stabilize, more income growth will create more home purchasing. …The scale of renters to homeowners will only skew slightly higher for renters. In the long term, things will get back to normal.”
That may be at the heart of the housing question: When–or if–the economy will get back to “normal.”
Richard Glabman, president of Northbrook, Ill.-based Deere Park Association LLC, agrees with Kern.
“We need to create job stability as a platform to buying homes,” Glabman says. “Buyers need an environment to justify the expenditure.”
Joshua Pollack, head of planning and allocation for the Parker Avery Group in Atlanta, notes that for many renters, their economic situation has become more accepted as the new status quo.
“Before, their mindset was the economy would bounce back. Now many are recognizing that the current economy is the new normal,” Pollack says. This philosophy is different from that of people who weathered the Great Depression.
“Back then there was belief in the Horatio Alger story–‘with hard work you’ll succeed,’ ” he says.
The Great Recession, tight credit and the plummet in home values have contributed to the rise in renters. Despite this, the desire for homeownership remains high. A recent study by Harvard University’s Joint Center for Housing, “The Dream Lives On: The Future of Homeownership in America,” found: “There are clear signals already that the dream of homeownership remains very much alive. Attitudinal surveys…show strong and continued interest in homeownership, even among young adults. …Events of the last several years have not done much to deter people’s desire to own. Nineteen out of 20 people under the age of 45 expect to buy a home at some point in the future.”
Renters don’t fall neatly into one socioeconomic group.
“They represent every imaginable type and background,” Kern says.
According to National Multi Housing Council statistics that are compiled from the U.S. Census Bureau’s 2012 population survey, renters skew young. Among those under age 30, 43% are in rental housing. This drops to only 16% of people age 65 and older. (Not surprisingly, the highest percentage of homeownership–84%–is among those 65 and older, too.)
The Pew Research Center estimates that 16 % of the U.S. population lives in multigenerational households–perhaps part of the reason online searches for scarce three-bedroom rentals are increasing. The “sandwich generation” of baby boomers with both adult children and aging parents sharing the household is on the rise.
The meaning for mattresses
Are increasing rates of rentership a potential problem for the mattress industry?
In his new book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy, Gross argues that a shift from an ownership society to a rentership society will unleash the country’s next economic boom. And, he says, the new economic dynamism will impact the purchase of home furnishings and mattresses.
“Possessions still matter,” Gross says. “Even though somebody might not be in the mood to buy a house, or may not be in that mode for several years, they will still be eager for and need a really great bed, an awesome desk chair, lamps, a fancy bicycle, a great espresso maker–the sort of things they can take with them when they move and that are affordable luxuries.”
Do the bedding needs and buying habits of renters differ from those of homeowners’? Glabman doesn’t think so.
“They’re one and the same,’ he says. “There’s no difference in that all consumers look for the best in value and durability.”
But some demographic trends do point to unique mattress needs of renters.
For instance, both Millennials (the youngest group of renters) and baby boomers who still are in the workforce are drawn in large numbers to metropolitan gateways— think New York; Boston; Los Angeles; San Francisco; Seattle; Dallas; Chicago; Austin, Texas; and Portland, Ore. These places offer job opportunities, amenity-filled walkable neighborhoods and good public transportation— especially important for Millennials, who are less likely to purchase a car than earlier generations. When it comes to apartments, they seek rentals with 24/7 fitness centers, communal spaces, pools, rooftop gardens and pet exercise areas.
With their combined numbers totaling more than 160 million people, these two groups can skew housing demand and supply—and the designs of home furnishings.
Metropolitan renters are swayed by free mattress delivery and free removal of old bed sets. These are the consumers who also are driving demand for roll-packed mattresses—even entire bed sets complete with pillows and foundations that come in one box—either from a sleep shop down the street or an online retailer.
It’s not just singles or even couples who choose amenity-rich metro living. Members of one family of four profiled on Dwell.com share 650 square feet in New York. Cleverly remodeled by Noroof Architects, the space boasts trap-door storage in the floor and furniture that stows, folds or swings away when not in use: The 9-year- old son sleeps on his dad’s desk, which transforms into a bed at night.
Multipurpose flexibility is key for renters. Such furnishings not only are great when space is tight but also make it easy to use pieces from one living space to the next. One New York renter who lives in a tiny 350-square-foot studio apartment advises renters on Freshhomeideas.com to ‘invest in double-duty furniture.” She says her bed ‘has built-in storage under the mattress, where I keep my ever-growing collection of shoes.”
Metro-based, small-space rental units with multipurpose furnishings and built-in storage are housing trends that are likely to grow. Skanska, one of the world’s largest construction companies, is partnering with retailer Ikea on redevelopment housing in urban areas. According to a ‘Cool News of the Day” article Feb. 25 in the online magazine Reveries, their current project in England includes stores, schools, theaters and a hotel, plus apartments for as many as 6,000 people. The partnership is seeking more urban redevelopment sites in England and Germany.
Pollack believes many renters, especially those living in apartments, gravitate toward smaller mattresses, for instance favoring a full or queen size over a king.
‘Their budgets are smaller. They often live in smaller spaces,” he says. ‘Renters live a more transitory lifestyle, but some remain optimistic that things will change. They think, ‘Right now, I want a less fussy sleeping situation.’ They might buy a bed that can transition into a guest bed later on.”
But Ilene Wetson points out that not all renters live in small spaces—and some have bountiful disposable incomes.
Wetson, principal of Ilene Wetson Art & Design Inc. in New York, designs interiors for rented co-ops, condos and private homes from Manhattan to the Hamptons.
‘While renters typically spend less on window treatments and wall coverings that aren’t portable, they spend more freely on furnishings,” she says. ‘People want their homes to be very comfortable. They’re buying a complete bed—headboards and platform beds such as a full bed unit from Restoration Hardware.”
When it comes to bed size, Wetson says, ‘the room makes the decision for the client. A large loft in SoHo demands a larger bed to fill the space—to make a statement. I’m selling as many kings as queen-size beds.”
Price can be an issue for two of the biggest demographics of renters.
‘Once in the market, both customers (baby boomers and Millennials) can be price sensitive,” Glabman says. ‘Older boomers have more disposable income and seek more durability. Younger purchasers—the Millennials—have a different lifestyle and are more apt to throw out a mattress with a move.”
Kern urges mattress manufacturers ‘to be sure that their products are a good fit for the needs of the renter—from small-space efficiencies to large penthouse- style units. The middle of the market will be seeking a balance of quality and utility against price. Portability is always an issue, but so is the size.”
When it comes to other bedding trends related to renting, Pollack observes, “look at the rise of ‘green’ mattress technology…this appeals to both the Millennial and boomer segments—the drive is coming from both.” Tout mattress components made from sustainable or recycled materials. Messages about the industry’s efforts to promote mattress recycling also can appeal to these groups, which Pollack calls ‘Prius demographics” because of their support of the environment.
In introducing a new mattress technology or brand to potential customers, Pollack endorses co- marketing with hotel chains or cruise lines to reach renters. ‘Try before you buy” helps melt a buyer’s resistance.
To sum it up
Regardless of whether it’s a permanent shift or a more short-lived trend, the number of renters has increased since the housing bubble burst and it’s a group that successful mattress makers need to target.
Renters are as diverse as the rest of the U.S. population. They range from never having owned a home to losing their former residence in foreclosure. They include retired baby boomers who don’t want the cost and burden of homeownership to job-hopping Millennials who move at the drop of a text message.
Marketing campaigns that target each niche group of renters with laser precision in media they view often will work best for mattress manufacturers hoping to reach them. Speak to their individual needs and lifestyles.
Regardless of the demographic, when it comes to mattresses, all renters want value, comfort—and a bed that’s easy to move. If the new bed set can be delivered for free to their doorstep—whether by store delivery truck or in a box from UPS—all the better. Storage solutions are appreciated. ¶