At its simplest, the new blockbuster study on rentals from the Joint Center for Housing Studies at Harvard , America’s Rental Housing; Evolving Markets and Needs, reads like an exercise in real estate economics. America has too many renters and not enough rental units, driving up rental rates until more than half of all renters, or 21.1 million, are spending more than 30 percent of income for housing.
Of course, the reality isn’t nearly so easy to discern.
While the study, like others before it from the Joint Center, focuses on affordability and most of the considerable news coverage in generated last week focused on the growing crisis in housing affordability among lower income Americans, it also excellently described the changing face of renting in America.
Many, if not most, of those changes are the result of the most important single development in housing over the past decade: the ascendancy of single family rentals from the conversion of 4 million foreclosures.
Single family rentals provide more options. “Preferences for location and type of housing depend on renter household type. Non-family households, including roommate situations that are more common among the young, are more likely to live in multifamily housing in central cities. As they move into the childrearing phase of life, renters tend to prefer single-family homes in suburban or rural locations. In fact, married couples with children choose single-family rentals more than any other housing type. Single persons, many of which are seniors, are more likely to live in central cities and the most likely of all renters to live in multifamily structures,” the study found.
The Growth of Single Family Rentals
In recent years, single family rentals have been the most important source to be rental stock. “Most of the homes converted to rentals are single-family residences, lifting the single-family share of the rental housing stock to a new high of 35 percent in 2011. While the share of single-family homes that are rentals also ticked up from 14 percent to 16 percent over this period, this increase only brought the share back in line with its long-run average.
“Much of the growth in single-family rentals may thus reflect the fact that these homes have become a larger share of the overall housing stock since the late 1990s. Although small-scale investors have traditionally owned the vast majority of single-family rentals, large investment pools began to buy up foreclosed homes after the housing crash to manage the properties as rentals. The largest of the groups amassed portfolios of 10,000–20,000 homes, many of them concentrated in a few select markets.” The reppor also made the point that “A large percentage of single-family rentals also has high rents, given that these homes are often more spacious and located in higher-income areas.”
The Future, According to Harvard
Finally, the report included powerful predictions for the future, especially important to single family landlords.
Rental rates are still strong. “The consumer price index (CPI) for contract rents—which excludes tenant-paid utilities and covers all rental housing in the country—is a key indicator of national trends. By this measure, the increase in nominal rents began to slow in late 2008 as the recession took hold and then bottomed out in mid-2010 before stabilizing at about a 2.8 percent annual rate through September 2013, outpacing the rise in overall prices.”
Homeownership has yet to make a comeback. “Homeownership rates are determined in large part by household incomes, housing prices, and the cost and availability of mortgage financing—all of which are highly uncertain. Preferences for owning or renting also play a role, but are similarly hard to gauge. Joint Center estimates of renter household growth therefore assume that homeownership rates by age, race/ethnicity, and household type remain at their 2012–13 averages. If current trends continue and homeownership rates decline further over the next decade, growth in the number of renters will be stronger than projected.”
Demand will continue to be strong. “The burgeoning number of seniors points to increasing demand for housing that meets the needs of aging renters. While many of these households may be able to stay in their current homes, others may have to move to housing with better access to services and social networks when they can no longer drive. In addition, the growing number of seniors on fixed incomes is likely to outstrip the limited supply of affordable rentals. With the number of families with children also on the rise, demand for larger rental units will increase as well, particularly in communities with access to good schools and employment centers.”
Photo: Jack Zalium