What the Rise in Multi-Generational Tenancy Means for Real Estate Investors
A 2022 study conducted by the Pew Research Center found that around 18% of the American population live in multi-generational households.
The study defined multi-generational households as those with at least two generations of adults over 25. For example, parents may have adult children over 25 who still live at home. Or adult children may have elderly parents living with them. Pew’s definition of multi-generational households also includes those with a “skipped generation,” meaning that grandchildren live with their grandparents.
According to this data, the percentage of multi-generational households has been steadily climbing since the 1970s.
This raises important questions about how housing needs to change to accommodate multi-generational households. And not just in terms of housing inventory for homebuyers. We’re starting to see a growing need for multi-generational rentals as well.
Let’s take a look at the rise in multi-generational tenancy and what it means for real estate investors.
Why Multi-Generational Households are on the Rise
First, it’s helpful to understand why more families are choosing the multi-generational lifestyle.
Data from the Pew study shows that there is a cultural element to multi-generational living. For example, respondents who identified as either black or Hispanic were twice as likely to live in a multi-generational household as respondents who identified as white. Similarly, foreign-born residents were 52% more likely to live in a multi-generational household than native-born residents. This discrepancy may be because of the value some cultures place on staying with family. But it can also be a financial necessity.
The cost of housing has skyrocketed in recent years, especially compared to more modest increases in income. And many families view multi-generational households as a smart, cost-saving measure. In fact, the Pew study confirms that residents of multi-generational households are less likely to be in poverty than those in other living situations.
How We Arrived at Multi-Generational Tenancy
In decades past, multi-generational households were typically resident-owned. The homeowner may have allowed adult children to remain in the home or invited elderly parents to move in. But today, we’re seeing more demand for multi-generational rental housing, particularly in expensive cities with a high percentage of renters.
Take Los Angeles, for example. We recently found that rents in Los Angeles increase nearly 2% more than the national average each year. And we know that 63% of Angelenos rent rather than own. In a multi-generational household study conducted by the US Census Bureau, researchers found that 8.3% of households in Los Angeles were multi-generational as of 2020, compared to a nationwide average of 3.8% of households. (If you’re wondering why the Census’ estimates are so much lower than the Pew study, it’s because the Census Bureau defines a multi-generational household as having three or more generations living under one roof.)
There is a clear correlation between cost of living, income rates, and multi-generational tenancy. So investors in areas with high rental rates may want to meet the growing demand for rental units that can comfortably accommodate multi-generational families.
How Investors are Meeting the Growing Multi-Generational Tenancy Demand
Investors and developers have already started accommodating multi-generational tenants in several ways, including:
- Adding accessory dwelling units (ADUs) to homes. ADUs, also known as guest houses, in-law suites, and casitas, are simply additional living quarters on a property. California ADU regulations effectively allow property owners to convert a single-family home into multiple living spaces, which is ideal for multi-generational households.
- Multi-generational build-to-rent homes (BTRs). As more would-be buyers have been priced out of the housing market, there has been an increase in houses that are designed and built as long-term rentals. These units feel more like homes and less like apartments, giving residents the lifestyle of a homeowner without the upfront financial requirements. With more bedrooms and bathrooms than traditional apartments, BTRs can be more comfortable for multi-generational families.
- Investing in real estate syndication projects that serve multi-generational tenants. You may not have the funds, resources, or knowledge to build your own ADU or BTR, but you can still capitalize on this growing trend while providing better housing options for multi-generational families. Real estate syndication pools funds from multiple investors to fund a project (like an ADU build or a BTR development). The project is professionally managed, so you get to leverage the experience of real estate experts and earn completely passive returns.
Get in on the ground floor of this emerging multi-generational tenancy trend. Start planning your ADU, developing your BTR, or investing in real estate syndication today!