In America, home ownership is losing ground to the rental cohort, and new internet-based services like Airbnb, Rent the Runway, Zipcar, and TaskRabbit — just to name a few — have enabled the rise of the “renting and sharing economy.”
Now, “rent” is becoming the new “own,” according to market strategists at ConvergEx Group — the brokerage arm of Bank of New York Mellon — who warn that the ripple effects of such a trend could be “catastrophic.”
“Americans of every demographic are flocking to services like Airbnb, Taskrabbit, and Bag Borrow or Steal for one overwhelming reason: Renting and sharing allow us to live the life we want without spending beyond our means,” the strategists write in a note to clients. “Not all of it is intentional, mind you: Low cash flow (or none at all) is most certainly driving many customers to rent rather than buy. But it’s also becoming quite trendy; consumers are either unwilling or unable to afford big-ticket purchases — whether it be a house for $US500,000 or a new dress for $US500.”
The strategists point to projections that suggest the “sharing” and “rental” economies will generate $US3.5 billion in revenue in 2013, and grow to as big as $US110 billion over the next few years.
What’s to blame? A few main effects are at play here, according to the ConvergEx team: (1) the bursting of the housing bubble and the attendant rise in personal bankruptcies; (2) lower disposable incomes as wage growth in America remains elusive; and (3) the introduction of new apps and websites in the past few years that enable more renting and sharing opportunities.
“The potential impacts of renting/leasing as a long-term trend, though, are worrisome: Renting and sharing could lead to lower home sales (and, subsequently lower home values and net worths), as well as lower auto and retail sales,” write the strategists. “The ripple effects could also be catastrophic: Adjusting to a consumer who does not necessarily buy, but rather rents, would necessitate a shift in production, sales, and even employment structures. Everything interesting in economics happens at the margin, so if the nth consumer chooses to rent an apartment instead of buying a house or making do with a car-share program instead of purchasing a new vehicle, then demand for new houses and cars drops.”
For the ConvergEx team, even more worrying than the rise of renting and sharing at the expense of ownership are the underlying reasons driving consumers to rent and share more.
“The crisis-sparked renting and sharing economy could have an effect similar to that of the Depression, in which the consumer psyche is morphed to constantly imagine a worst-case-scenario,” they write. “The recent recession, arguably, could be fostering a generation of ‘renters’ and ‘sharers’ (as opposed to ‘savers’) who are wary of potentially risky investment vehicles or financial instruments. Recent urbanization trends in the U.S. population could be the first signal of this: Cities are the hubs of the renting and sharing economy, after all.”
That’s why the behaviour of the Millennials — the generation often parametrized as having been born between the early 1980s and the early 2000s, will be key to watch.
“As it stands, the rental economy will probably prosper for a bit longer as this cohort pays back student loans and finds higher-paying jobs,” say the ConvergEx strategists. “But as they approach their 30s and beyond, it’s not overly optimistic to expect them to make the big-ticket purchases they couldn’t before. Some will be renters for life, of course, but many will come to appreciate the value of owning: Taking out a mortgage for a home typically results in lower monthly payments than rent, for example.”
The data are clearly reflected in search data: Americans are Googling 'house for rent' more than ever before.
A similar trend can be seen in searches for 'car lease.' According to ConvergEx, leases accounted for 27.5% of all new car purchases in 2013, up from 10.9% in 2009.
Meanwhile, traffic to Airbnb.com, a service that matches those renting out parts of their home, typically on a short-term basis, has soared.
The same can be said for the website of Zipcar, a service that offers flexible, short-term car rentals.
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