For many people, life involves a progression of places they call home.
First, there’s the starter rental, such as a cheap studio apartment or a rented room. Next, they graduate to the starter home and the dream of homeownership.
But, according to Realtor.com, America has spent years mourning the death of the starter home, and for young adults today, the housing crisis began much earlier—with the disappearance of that all-important starter rental.
“Entry-level rentals are the first rung of the housing ladder,” Realtor.com Economist Jiayi Xu said. “An affordable entry-level rental gives a young household the financial breathing room to build savings, establish credit, and accumulate the down payment that makes homeownership possible.”
As recently as 1990, nearly half of U.S. rental units cost less than $600 a month after adjusting for inflation, according to Harvard’s Joint Center for Housing Studies (JCHS).
By 2017, that share had fallen to just one-quarter of the rental stock, Realtor.com noted.
Impact on the Economy
The disappearance of the starter rental has massive implications for the U.S. economy and the future of generational wealth, Realtor.com noted.
“When that rung [of the housing ladder] is missing, the entire climb becomes harder,” Xu said.
In 2025, the median age of first-time homebuyers was 40, with a typical FICO score of 735 and enough savings to cover a 10% down payment, Realtor.com said.
The first-time renter, however, doesn’t fit any one mold, Realtor.com noted. That person might be a student with no work history, an early-career worker, an immigrant, or someone who just moved to a new city, the website said.
In the 20th century, a starter rental could be a single-room occupancy unit, residential hotel, or boarding house, Realtor.com noted, and those low-cost micro-units gave a wide range of people with limited income or limited connections a way to live independently.
For as little as the equivalent of $100 to $300 a month today, residents could rent a private room with access to shared bathroom and kitchen facilities, Realtor.com said.
Number of Cheaper Rentals Fall
From 2014 to 2024, however, the number of rentals under $1,400 fell by 9.3 million units, Realtor.com noted, while the number renting for $1,400 or more increased by 11.8 million units, according to Harvard’s 2026 rental housing report.
“Entry-level rentals are an economic recruitment tool,” Xu said. “Markets that maintain accessible rents attract and retain young professionals at the earliest and most mobile stage of their careers.”
Realtor.com noted that when cities lose those affordable options, it fundamentally alters their economic trajectory.
“When cities lose their entry-level rental stock, they don’t just lose affordable housing,” Xu explained. “They lose the conditions that make young household formation possible in the first place—and with it, the workforce pipeline that sustains long-term economic growth.”
Realtor.com said its research shows how this geographic shift is playing out in real time.
Smaller Markets Compete
Instead of flocking to traditional hubs of innovation and ambition such as New York City, Los Angeles, and San Francisco, young adults are concentrating in midsize markets such as Colorado Springs, Colorado, Austin, Texas, and Denver, Colorado.
Realtor.com noted that those smaller markets offer something the coastal giants don’t: a place where a competitive job market and manageable rent coexist.
Economists Daniel Cooper and María José Luengo-Prado measure young-adult household formation through its inverse: living with parents (LWP).
As the economists say, “a higher share of LWP corresponds to lower household-formation rates.”
The economists’ research found that housing costs and business-cycle conditions explain up to 70% of the difference in household-formation rates across two groups of young adults in 1979 and 1997—well before the worst of the current housing affordability crisis.
Housing scholar Arthur Acolin discovered that as housing becomes less affordable, more young adults live with their parents—and delay that crucial milestone of moving out.
Will Starter Rentals Come Back?
Is there a future for starter rentals?
According to Realtor.com, the scope of this bottleneck has sparked a growing movement to bring back the starter rental.
It reported that states nationwide are moving to legalize SRO (single room occupancy) development, proposing and passing laws that allow co-living and micro-units, or overturning prohibitions that arbitrarily restrict the number of unrelated people who can live in a single dwelling.
Nationally, Realtor.com noted that advocacy organizations such as the Institute for Justice are championing the ROOM (Restoring Options in Occupancy Models) Act that would preempt restrictive local zoning rules to make SROs and co-living legal by right in both residential and commercial zones.
