Could 'Living As A Service' Be The Future Of The Apartment Business?

The fundamental demographics of the U.S. apartment renter — the age and income of typical tenants — have changed dramatically in recent years. But the business model underpinning the multifamily industry hasn’t. 

Most apartment tenants must commit to a 12-month lease, buy their own furniture and pay for electricity, WiFi and other necessary services separately from their rent. If they want to move, they need to haul that furniture to their new place and sign up for utilities again in their new building. And if life circumstances require them to relocate before their lease is up, they must pay up to move out.

But this longstanding model of apartment leasing is ripe for disruption, real estate consultants from the Deloitte Center for Financial Services say. 

A new subscription-based model called “living-as-a-service” — a nod to the software as a service business model — could soon replace the traditional apartment lease, Deloitte forecast in a May report. 

The concept involves bundling payments for rent, utilities, maintenance, housekeeping and other services into a single bill, while landlords would provide fully or partially furnished apartments.

Perhaps the most radical change: Renters could move whenever they want. 

LaaS offers far more convenience and flexibility for renters than the typical lease agreement. And it would provide financial benefits for landlords, according to Deloitte.

The living as a service concept is geared toward large owners and managers with buildings across many metro areas that residents could move between. 

The multifamily industry is already consolidating as apartment owners look to weather rising costs through economies of scale. AvalonBay and Equity Residential last month announced a record-breaking merger that would create the nation's largest apartment landlord, with a 180,000-unit portfolio.  

"As we evaluate services that could be part of a subscription model, some of the bundling is meant in ways to better enable the mobility,” Deloitte partner Jody Hill, who leads the firm's real estate consulting services team and co-authored the report, told Bisnow. 

Rather than committing to a 12-month lease, renters could stay in an apartment as long as they want and move to a different unit within that landlord's portfolio just by giving a certain length of notice, likely 30 or 60 days. Then when they make that move, they could continue paying for all of their services through the same bundled bill and wouldn't have to move furniture. 

“One of the larger challenges in moving in a metro area, or to another metro area, are some of the different upfront connections, multiple suppliers, chasing that down and having your cut-off and start date, so you could ease that transition by actually providing that as a service that’s transparent and easy to the renter,” Hill said.

Transparency is a key element: Allowing renters to see the itemized costs within their bundled bill would reduce potential concerns about landlords hiding fees and jacking up bills, Hill said. Landlords' fee disclosures have come under scrutiny from local and federal officials. 

This type of subscription wouldn’t be cheap, especially in metro areas with high housing costs, but the U.S. has a growing number of renters who have the money and might value that type of convenience. 

Americans in recent years have been renting for longer stretches of their life: The median age of a first-time homebuyer is now 40, up from the late 20s in the 1980s, according to the National Association of Realtors. 

This is due in part to housing prices rising faster than wages, making down payments too expensive for many people. But some of the costs that don’t go into a homebuyer’s equity have also risen, such as interest rates, insurance and property taxes. And more higher-income people are deciding a home isn’t their best investment and they would rather keep renting for the flexibility. 

The number of renters with incomes of $1M or more rose by 204% between 2019 and 2023, outpacing the 169% growth of homeowners in that income bracket, according to a RentCafe report. 

This trend was accelerated by the pandemic, as the rise of remote work led more people to decide to move from city to city rather than planting roots. 

The growing renter population consists of not only millennials who aren't buying homes but also baby boomers who are choosing to downsize to apartments. The share of renters age 65 and older grew 30% between 2013 and 2023, adding 2.4 million renters to the market, according to census data.

With these shifts continuing, Deloitte is forecasting a significant increase in the number of U.S. renters over the next decade. Its report lays out three scenarios: one in which the current baseline of 34.3% of U.S. households renting continues, and two in which that share grows to 35.7% and 39.3%. 

Under that highest scenario, based on a projection by the Urban Institute, the number of households that rent would increase by 10 million by 2035. 

That growing renter population is the impetus for Deloitte's living as a service proposal. 

"When I think of the high net worth renter and the subscription-based model, I would think, as a real estate owner, that would be a very appealing market," Hill said. 

While the model hasn't been adopted by any nationwide multifamily companies, Hill said his team has recently been discussing the concept with Deloitte's clients in the multifamily sector, which he declined to name. 

For landlords, the model could help them capture additional income. 

"Even a modest adoption of bundled services across a large portfolio could generate meaningful revenue increases and consistent income streams while strengthening resident retention and satisfaction," Deloitte's report states.  

One landlord who reviewed Deloitte's report said he likes the concept: Jamie Weinbaum, the CEO of Horning, a D.C.-based developer with 5,000 apartments under management. 

He said the student housing sector has adopted some of these features, like bundled utilities and furnished units, and there would likely be demand for this concept from recent college graduates in addition to older adults choosing to rent longer.

"In the past, there was a default expectation that by 30 or 32, people were moving into homeownership because that is the 'American dream,'" Weinbaum said.

"If there’s a broader recognition that the expected time frame actually is 40, and that there’s longer time horizon for being a renter — that is where we are as a society and people grasp that — then businesses that offer models like this start to realize that the target demographic isn’t people for whom things haven’t worked out."

Hill also said the emergence of this new model could coincide with changing public perceptions about renting. As people see more higher-income households choosing to rent, it could reduce the negative stereotypes that people renting well into their 30s or 40s have failed in some way. 

"I do think this could be a pivot point that changes the stereotype," Hill said. "There are different views of renting and what you’d probably picture the most typical renter is. As with other services and almost any type of asset you lease over time — vehicles are one as well — the perception could change."