‘Generation rent’ was once a label leveled cynically at millennials (can you tell we didn’t appreciate it?!), but it has since come to embody the reality of a much wider group. 

Millennials are no longer the only ones priced out of the property market. The average cost of a house in the US has risen 48.55% over the last 10 years, and is now 5.4x the typical salary. Meanwhile, rising interest rates saw the average 30 year mortgage rate top 6.43% in May, over twice that of May 2021. For many, buying a home is a dream that is rapidly becoming unattainable.

Rents have also trended upwards, eating into disposable income and reducing many people’s ability to save. Any household that spends more than 30% of its income on housing is considered to be cost burdened, and 2021 saw a record number of renters (nearly 50%) fall into this category. It’s a vicious circle. Expensive rents push out the time it takes to save for a down payment, while house prices continue to climb and rising mortgage rates push monthly repayments still higher, often beyond reach for many – especially those who don’t already have a foot on the property ladder. 

In the near-term, there is a glimmer of hope for generation rent. While house prices are currently going gangbusters, the rental market is actually trending in the opposite direction thanks to a supply glut. Vacancy rates are on the rise – Apartment List notes an upwards trending vacancy rate of 7% nationally – and in some markets it’s not unusual to see landlords incentivise new tenants with free or reduced rent for a couple of months.

Rethinking property investment 

Residential property has always been a reliable inflationary hedge. Current downward pressure on the rental market notwithstanding, both rent and asset appreciation typically trend upwards ahead of inflation. For individuals, gaining exposure to property as an asset class has always been challenging. Traditionally most people owned one home (the one they lived in), but that’s far from a given now. Which means the benefits of property investing, particularly in a high inflationary environment like today’s, have traditionally been limited to institutional investors and high net worth individuals.

Younger generations might be disadvantaged compared to older cohorts when it comes to property investing, but saving and investing generally is a priority for many of us. Millennials typically start saving earlier than Boomers, and are more likely to hold stock or crypto assets. Meanwhile, the majority of those aged 18 to 25 (Gen Z) are already investing, and are far more likely to have adjusted their investment portfolio in response to market volatility and inflation than the generations before them. There is demand for affordable property investment opportunities from these groups.  

Skyrocketing property might be pricing huge swathes of individuals out of the market, but thanks to blockchain there is a proliferation of new technologies that have the potential to make property far more accessible, fractionalizing ownership and supporting secondary markets. 

Rent to own

This week at Hedgehog HQ, we announced the launch of an exciting pilot: The Resident Rewards Program. Run in conjunction with our long-term partner National Resources, the project gives an initial group of tenants in New York the opportunity to build cash equity while they rent. It leverages our blockchain technology capabilities to provide tenants with exposure to any potential appreciation of their building in exchange for hitting certain rental milestones.

Tenants are awarded tokens each time they pay rent on time or renew their lease. The goal is to increase tenant satisfaction and enable residents to build cash equity that could be the basis of a downpayment for a home, travel or other personal plans. After two years, the tokens are converted into cash. 

The Resident Rewards Program gives landlords a compelling incentive to attract and retain tenants, particularly in a market like today’s where competition is fierce. For tenants, this model offers an opportunity to build equity and gain exposure to the property market, even if they can’t afford to buy. 

A new solution to an old problem 

Society drills into us that certain milestones equate to success or financial stability, and home ownership is one of the boxes we are supposed to tick. But with social norms changing – who’d have thought remote working, or work from anywhere would be a viable option one day? – and property rapidly becoming unattainable, maybe it’s time to rethink that? In markets where the supply of property to buy is low, but rental supply is high, it can often make more sense to rent than buy; particularly as mortgage rates – and subsequent monthly repayments – rise. 

Use cases like fractionalised ownership and Resident Rewards are among the first to simplify property investing, giving individual investors the opportunity to gain exposure to property regardless of whether they rent or own their homes. These technologies will help us to reshape how we think about ‘Generation rent’, introducing innovative distribution channels that are both scalable and efficient, increasing capital inflow and making property ownership a reality for everyone.

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