The coming decline in ownership

We will soon own a lot less stuff

The next few decades will witness a massive decline in ownership.  Renting, not owning, will become the primary way people in the first-world consume. 

The last century saw an enormous increase in ownership.  This change was spurred by a few factors:

  • Wealth: society grew much richer over the past 100 years.  Imgres-2
  • Convenience: having your own property available to you all the time, e.g., your car, has been much more convenient than the alternative.
  • Technology: the advent of big-box stores and the Internet made it easier and cheaper to own than before.

And thus, we have way too much stuff.  In fact, everyone, even the some of the poorest Americans, have tons of things we don’t need and no longer want. 

But this will change.  We will soon become a nation of renters. We might still own the very essential things (like our smart phone) or things that are used very often (like underwear), but there will be little need to own things we use only occasionally (a fancy pair of shoes, most jewelry, or that really nice pizza-making set). 

The things we might want to rent fall into three categories: 

Images-11. Things we need occasionally, like specific cookware.  We'd like to use that lovely baking set 3-4 times per year, but we don't want it cluttering up your cabinet everyday.

2. Things we need for a finite period of time, like baby’s clothes.  We might want to hang on to one or two cherished items, but most of our baby’s clothes go to waste after the child grows.

3.  Things we need only once, like a hotel room.  When I go to Kansas City for two nights, I am not going to buy a house.

Paradoxically, some of the same forces that have made it so easy to buy will soon make it much easier to rent. 

Technology: Much of the newest technology in the last decade has focused on renting rather than owning.  It is no longer smart to buy music – you can rent every song in the world from Spotify.  Instead of buying movies, you can watch them on demand on Amazon Prime or Netflix.  ZipCar gives you the flexibility to drive whatever car you fancy at the moment – sometimes you’ll want a sports car and other times you’ll want an SUV.  Attending a ritzy party? You can rent that designer ball gown from RentTheRunway.com instead of spending a fortune to own it. 

Unpredictability: Our world is now perceived as more unpredictable than it was a generation ago (especially for Americans).  A hard-earned asset like a house was once a sign of stability, but in the past ten years owning a home became a ruinous liability for many.  Without certainty about the future, ownership is high risk.

Convenience:  While owning is often more convenient than renting, technology and business model changes have made renting really easy (and, in some cases, even easier than owning). For example, with car sharing services you don’t have to worry about obtaining insurance or finding a parking spot.

Population Density:  More people are choosing to live in dense urban areas.  This means we all have less room for stuff.  Shrinking living spaces makes it increasingly impractical to own things like winter sports gear, larges tools like table saws, and other occasionally used items.  Additionally, renting is much easier when there is a high concentration of people because warehouses and depots can reach high utilization. 

Environmental Awareness: Creating stuff we own but no longer need is a big contributor to environmental harm.  As some of the population grows more concerned about the health of the environment, many will consider renting a less wasteful way to consume.  While recycling helps mitigate the damage caused by the things you own, renting leaves an even smaller footprint. 

ImgresOver the next 20 years, we’ll see a huge movement toward a renter’s world.  The second order effects of this shift will be both positive and negative.  Positively, people will be able to have more choice, convenience, and opportunity to experiment.  Negatively, the decline in ownership will undoubtedly hurt economic growth, with potentially catastrophic implications for countries like China that make much of the world’s stuff.

 Like with many economic problems, change is dictated by our ability to solve market inefficiencies.  The things we own that we don’t use regularly are wastefully underutilized, and it is only a matter of time until those inefficiencies were cured.  That time, the time of renting, is nearly upon us.

 

Special thanks to: Kurt Tsuo and Michael Safai

20 thoughts on “The coming decline in ownership

  1. NadimHossain

    Auren – enjoyed your post. The forces you describe are very real, and positive ones. I would say it’s not just renting, but also about sharing. Technology is removing information asymmetry (knowing someone has baby clothes to give away or sell) as well as transactional friction (communicating, paying). The fact that we’re coming off of a binge of consumerism, while awareness of environmental issues is heightened is the cherry on top.

    Reply
  2. Jennifer Chance

    I have found there are certain things I don’t mind sharing, and certain things I do. For instance, I mind sharing underwear, toothbrush, etc. I don’t mind sharing a fancy purse.

    Reply
  3. Tim Dick

    There is a sharing trend / bubble / fad in dense & hip cities like SF and NY. Do you see that moving to smaller and less dense markets? Do you see this trend primarily changing patterns for minor assets (say <$500) or major assets like vehicles and homes where interest rates, and tax policies (e.g. mortgage interest deduction, business vehicle lease deduction) play a larger role in decisions? For example, the punchline on today's NPR story about home sharing ended with the group deciding to purchase the houses.
    I'm probably the old guy in the room, but aside from ZipCar, I see many journos talking about renting someone else's pasta maker but don't know any one actually doing it aside from those promoting their pasta-maker-rental.com startup. Nor have I seen anyone describe an economical delivery / return mechanism for such low value assets.
    Is this real or Kozmo 2.0?

    Reply
  4. Mark Cramer

    Excellent post, Auren. I agree with all of these point, except for the bit about the shoes. When I get a fancy pair of shoes (infrequently, I’ll admit) I need to break them in a bit before they’re comfortable. But that’s a nitpick. Everything else (at least for me) is spot on.

    Reply
  5. Ken

    You’ve identified the trend correctly but fear you’ve drawn the wrong conclusion. I suspect ownership increases. If renting allows greater use of things one wouldn’t use because the cost of ownership is too high – in theory demand increases. Increasing demand might encourage individuals or corporate entities to buy say a bundt pan and monetize it. In some Real estate markets the ability to monetize homes through airbnb and home away has helped defray ownership costs and helped drive demand for ownership. Yes – some people have decided not to buy but perhaps not as much as it’s increased demand due to lower total cost of ownership. Further, your argument that fewer owners occur because of greater efficiency has to assume that if so aggregate spend goes down – this could drive prices up depending on price curves or down if supply and demand curves need to meet. In short, for argument to be correct, that ownership decreases you have to believe demand stays flat or decreases. Other markets allowing for lower cost of access usually increases demand substantially

    Reply
  6. Dan

    This entry feels a bit more like a personal wish not necessarily a trend. People often do what they want not what we think they want or what we think they should want.
    Taking one example from the blog entry, that of home ownership. Accepting the fact that there have been enormous problems caused by the way mortgages were securitized, the percentage of home ownership still only fell from around 69% (when it was at its high) to 65%. It is not obvious that the desire to own a home has dropped much at all.
    Is there evidence for this sharing trend that you could add to the post.

    Reply
  7. Rick Krementz

    Wow!. Spot on; very good insight. I wish I had thought of that. Great post, Auren.
    Responding to Tim Dick, I agree *to date* I have not seen (nor looked for) rental pasta machines. Yet, there is a huge “rental economy” at the low end (think furniture and TVs in blue class or lower neighborhoods) already. Transmogrifying to a more upscale cliental does not seem that difficult. We already see this from many big box retailers, that essentially accept returns for any reason. I know people who abuse this by “renting for free”. Seems a minor change to make this a revenue stream.
    Lots of specialty products, such as high end SLR lens rentals, construction equipment (by homeowners), food preparation (think self-catered parties) are already common.
    Yep, I think will be a very important trend.

    Reply
  8. Joe Balsarotti

    Seems to me that while sharing works for creative works and media, tangible items are a different story.
    Your example of the shared car mentions insurance not being required. That’s not true, insurance is still required although it may be a rider on the insurance agreement (and no doubt much more expensive per day than a traditional policy would be).
    Those advocating sharing tend to be the ones owning and wanting others to pay them for a ‘share’ as the owners laugh all the way to the bank.
    Also, if the basics of business were taught again and people able to correctly value their time, I doubt that most would fool with renting cooking items, or housewares as the time/trouble to rent and return outweigh the convenience and cost of just buying ‘and being done with it’.

    Reply
  9. Jonathan Tsai

    Auren the prophet (or oracle?)! These are interesting insights extrapolated from your analysis of current observed trends/directions, but this is a fairly huge prediction.
    Overall a well written article, shared with some friends and on Facebook. I would agree with the article’s general sentiment, but I see a lot of exceptions or what-ifs and dependencies in which a single slight change could alter the course of your prediction dramatically.
    I raise the same issue as Tim Dick–do you see this limited along particular dimensions? If so, which ones? Also, you said “_a lot_ less stuff”–how much is “a lot” to you? I don’t think a drastic change amounting to “a lot” will happen in my lifetime where I live (SF Bay Area). I can see gradually owning less and less happening, and maybe stop after a few items become transformed into communal or collaborative.
    I see factors of geography, culture, quality, and others that would potentially counter/resist this trend.
    Dense cities in SF/NY/LA are nowhere near as dense/huge as they are in other mega cities around the world, like Manila or Hong Kong or Shanghai.
    Also, interested to hear about what you are doing now/what big bets you are making now to capitalize on what you think is going to happen on the future. E.g. I read an article about how Uber has all this potential with its current infrastructure to help enable the trend of collaborative consumption (example from said article: rent a BBQ grill and get it delivered to you along w/ a pack of hot dogs in under 20 minutes for $40, as it would simply be throwing BBQ grill into back of the trunk of car).
    San Francisco is pretty dense, but other important cities even in California, like San Jose, are pretty sprawled out and spaced apart, not to mention people living there or in much less dense places like for instance Alaska, New Mexico, Texas (and outside of US: Canada, Russia)… taking a limited supply of shared goods to massively spaced out land areas and ensuring quality, timeliness, etc will be very challenging. Those people will still have lots of space to store the stuff they own.
    In Asia, the culture is very much not DIY or experience it hands-on. Instead, I predict there will be an increasing need for specialists/service providers and baked-in into the infrastructure. Kinda like in the medieval ages or earlier depicted in the movies, where a mega castle will house a tailor, carpenter, blacksmith, etc. How many people would want to own their own stuff, then? I think an over-saturation in population will at some point dictate a complete change in the solution needed. For a big city with transportation problems, ZipCar is only a temporary bandaid. Ideal, long-term solution would be to build a better public transportation system, altogether phasing out cars.
    So I am somewhat in agreement with you that there will be less ownership in general, but not necessarily result in increased collaborative consumption like AirBnB and Couchsurfing; ridejoy.com recently just announced they are turning on autopilot mode and no longer actively developing it.
    Hobbyists and DIYers will continue to own the things they own.
    Culture has a lot to play in it also. When I was working at a large company, I once emailed the team while we were planning a team trip to offer sharing a hotel room w/ someone to save company some money and also improve team bonding opportunities, and jokingly said, “Or be American-minded and enjoy your privacy.” No one took me up on it, and instead I received another humorous response, “I’ll choose American through-and-through–I’ll get my own room!”
    There are certain things that people just won’t want to share, no matter what, and that’s in the realm of what they regard as privacy. Where the line is drawn in privacy is a reflection of individual + cultural attitudes.
    Currently, I think I pretty much already own everything I need/want, and intentionally won’t add to the collection. If there is anything that is truly one-time or limited use, I would have rented it anyway.
    Then, there is a problem of quality. Go snowboarding once per season or every couple of years? Maybe makes sense to rent. Go multiple times a year? Own. Well, I fell in love with snowboarding after the first time, and splurged on buying my own equipment. I don’t go many times a year (and haven’t gone for 3 years now), but I still don’t regret buying that one time, because some stuff is just great brand new, and the rental stuff just ain’t good ’nuff. By the time I wore it out, the resale value is basically nil. For certain expensive goods, the quality quickly deteriorates after a couple of uses.
    Then, there are companies like Nest that are building hardware + software to automate (optimize) your home. Ikea and other companies come up with ways to efficiently store and organize your stuff in the limited space you have. I think people will generally own the same amount of stuff they do now, but perhaps just a _little_ bit less of the bulkier things (replaced w/ more different and efficient things).

    Reply
  10. SG

    …and also rent those pesky kids and the spouse while you are at it 🙂 Not to be facetious, but we get used to a lot of what we own and renting tangible items (as Joe B. mentions) risks breaking the “just works because I am familiar with it” experience. Digital goods like movies and books are different because the whole point is to get a *new* experience.
    Ownership is also *less* risky than renting because you get to use your car or house even if you lose your job. Its only a problem if you are debt-financed and are making interest payments (in which case you are sort of renting the product from the lender).
    My sense is that renting tangible products will be remain for those scenarios where either I am not sure I want the product (i.e. “I don’t know if I will live in a city for 5 years”) or I cant afford the upfront cost + maintenance costs (i.e. buying a car plus paying for parking and ongoing maintenance).

    Reply
  11. David K.

    I agree but big question that I have is what it means for valuation. I think countries that have more of a renter attitude when it comes to real estate have historically not seen as much of value gains in real estate – but also less busts, which supports your argument reg volatility

    Reply
  12. David Carlick

    Hotel rooms, airplane seats (even NetJets) train seats, taxis, rickshaws, seats on the Google bus, all ‘shared’ assets. Long history.
    Internet replaces old ways of ‘sharing’ (garage sales) with new (eBay, CraigsList), again, long history.
    Public parks (shared yards). Tennis clubs (shared courts). Golf clubs (shared ridiculousness). Pubs (shared living rooms).
    Home ownership in a shared economy means you may own the asset as your residence (if you are going to be in a place a long time, the economics are compelling) or as an income producing asset (someone has to own the rentals) and now, you have more ways to get income from the asset.
    I love to think we’ll have less stuff, but that isn’t our nature. Why do homeless people have three shopping carts piled six feet high with stuff?
    Auren, thank you for a thoughtful piece. Cheers!

    Reply
  13. abc responder

    Thought provoking as always — nicely done. A few friendly retorts, off the cuff with a smile:
    1. Things we need occasionally, like specific cookware. We’d like to use that lovely baking set 3-4 times per year, but we don’t want it cluttering up your cabinet everyday.
    You clearly don’t cook! You can’t get cookware you don’t own on demand unless your neighbor has the pieces you need, and you’re not going to rent from your neighbor. If you’re a cook, you want to have a nice-sized and super stocked kitchen because you don’t plan meals well in advance. You often plan them the day/hour of, and then renting cookware is out of the question. Bottom line — if you’re a cook, or even a mom who cooks for her kids regularly, you want to own your own cookware 🙂
    2. Things we need for a finite period of time, like baby’s clothes. We might want to hang on to one or two cherished items, but most of our baby’s clothes go to waste after the child grows.
    Here I’d say you clearly aren’t a parent, but wait, you are! Seriously, renting baby clothes? Would you rent someone else’s clothes? Hand-me-downs are a different story. Yes, they go to waste. Because they get used after you buy them! When you get them on eBay second hand (a great practice I love to do), you still own them.
    3. Things we need only once, like a hotel room. When I go to Kansas City for two nights, I am not going to buy a house.
    Yes, that’s for sure.
    That said, I agree with the general thrust of your argument but believe it applies to a very small part of the population, including in the first world. Our peer group is more likely to participate in the lifestyle you highlight below, but our peer group is very, very small, including here in the U.S. People — especially Americans — like space, like to own stuff, and like to consume. I predict this dynamic will not change for at least 1-2 generations in the U.S. and likely much longer, so long as Americans and our new immigrants continue to have children.

    Reply
  14. BowDowntoZod

    OK…I guess I’m the curmudgeon…
    I agree that there are *SOME* things that we will be renting…hotel/vacation rooms, cars…even boats and some electronics like TVs and such…but there is NO WAY! I’m ever going to rent a cooking appliance, or clothing other than specialty clothes like bowling shoes or the like (I don’t wear suits or tuxes, so I’ll never need to rent those) and living in the suburbs, population density cannot support any kind of rental model. The county I live in is only 300,000 people, and yet we are the richest county in the country. There is no Zipcar, no bike rental, and no city center either! So there is no single major population center other than the “Big City” 40 miles away. Sure…you can walk to shopping, but like Stephen Wright the comedian once said…”Everywhere’s in walking distance if you have the time”.
    Unless I’m on vacation, I don’t see myself renting anything really…I tend to be a bit more permanent than that…I own my cars for 15 years…I keep my shoes for 20 years…I don’t throw away or get rid of things just because they aren’t “fashionable” or “outdated”. I like to get my worth out of things before I get rid of them, and usually I have no choice but to get rid of something because it’s either falling apart or too dangerous to use any longer.
    Yes, I live in a big house in an exclusive neighborhood…4 cars between 2 people, but I like my stuff! and I actually *USE* the stuff I own…I can’t fathom renting anything other than a proprietary tool or a vehicle…unless I’m on vacation

    Reply
  15. Andrew Boer

    You started your argument with the idea that more wealth leads to more stuff. I fundamentally agree with that. The Romans had a lot of wealth and they built a lot of stuff. Ditto the Pharaohs. And the Medici’s. Americans had a lot of wealth in the 20th century and stuff got cheaper too, so we bought a lot of stuff.
    So I thought you were going to argue that we were going to get poorer. Because if the Pharoahs, Medici’s and Romans are any indication, I think you actually see MORE stuff built/consumed in those times when there is an income disparity between the super rich and everyone else.
    Technology vs. stuff goes both ways. We invent Zamboni’s, and our basements are completely full of everyone’s hockey gear. (It is just insane down there, trust me).
    Finally, according to my memory of Economics 101, the environment is an “externality” and has little effect on individual consumer choices.

    Reply
  16. Andrew Boer

    Agree about human nature.
    And stuff isn’t so bad. Sure the pursuit of wealth and conspicuous consumption may be fundamentally pointless and deleterious to the planet. But if we have to be wired to compete for resources, then stuff is still loads better than the other alternative: conquering and subjugating others.

    Reply
  17. Ale Estrada

    Include Cars in your list, with Smart Cars coming very soon it might make no sense owning one at all as you will call one from an app and it will drop you wherever you want and the go and pick up some one else. And hopefully traffic issues will be totally solved in large cities.

    Reply
  18. Matthew Dundon

    Auren — I think you may eliding two rather different axes — sharing (an allocation of possession) and renting (a means of financing).
    Lots of things will become efficient to share, but in many cases that sharing is going to be in the form of fractional ownership, rather than renting.
    Renting is always going to be expensive because it introduces a core inefficiency — it shifts the residual value of the asset to the lessor, away from the user / lessee, who would usually be the person best able to assess and protect that residual value. The lessor has to charge for, and the lessee has to pay for, that shift.

    Reply
  19. Chris Everett

    Interesting post. I’ve thought more and more about “leasing” a vehicle rather than owning it since cars aren’t a “solid long term investment”, but who wants to have a car payment forever and always?
    As I read through this article, though, I thought to myself – what a great way to declutter your life of the material objects that we use once every few months, and that take up too much space in an already cramped in-town home. But there are several things that came to mind as I read on. Some which you addressed at the very end such as the impact that would occur on our consumer oriented economy – it would appear we’d need to produce less if we weren’t buying less and reusing the same items over and over from businesses who rent them out.
    But what about the concept of ROI as consumers? I’d much rather pay $60 for a weed wacker that I can use for the next 10 years rather than pay a $15-30 rental fee to use it over a weekend. Perhaps, though, this model offsets some of the overall “economic impact” from the decrease in manufacturing?

    Reply

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