Harvard Thinks The Rent Is Too High… Do You Agree?


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 “Ashadow_image_101279 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

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.


  1. Steve,

    While I am thinking about it, I want to thank you for your insightful articles.

    I think the market is reflecting the economy, overall as the USA moved more towards a third world status as opposed to the thriving yearly growth we have experienced during the 15 years prior. The turning point in my opinion happened when our government and a voting block decided to move the USA towards a socialist model of government influenced markets, and employment. Now like most of the rest of the world we are moving from a system of the very wealthy and to the very dependent whether they be called middle-class or poor.

    Our strong hold was innovation and technology and we were the lenders of the world.
    We are innovators and still producers of technology, but the vast majority of citizenry no longer benefits as these products are produced elsewhere.
    Just like our government heavily in debt so have our people become, and their incomes slowly eroding through inflation can no longer afford a house because unless they seek shelter in the worst areas of town the rents are unaffordable.

    In my opinion as the Country moves along this road, we will be seeing rent control in all major cities. Just my 2 cents.

    • Dennis,

      Thanks for your kind words and thoughtful opinions.

      I think the housing policy establishment–of which the Joint Center is a memhber in good standing–is still coming to grips with REO-to-Rental phenomenon. Small investors have delivered ten times more housing units to the marketplace than multifamily. Though these may be priced higher per unit since they cost more to bring to market, they deliver more value. Nowhere in the report do the authors discuss where rents would be without the new flood of single family rentals.

      The key is data, and only in the last year or two have organizations like CoreLogic egun to fill that gap.


    • If I may, I have been at both sides of the coin in this market and others past. I am a sales real estate agent since 1995. Not to say, It make me any smarter because it didn’t. but today am lot more wiser and that’s how I pay my bills.
      there is a two side to the story 1- real estate has never been contained to the ideal and 2- there is No standard.
      it has catch up with the a trend tempted by opportunistic turns with government assistance. who in the right mind from Harvard to Preston U, would argued in favor of stamping 2nd and 3rd rated mortgages (sub prime) as quality A mortgage (Fannie Mae) in our life time, and for what end?.. ask the wall street wolves that feed on it. does Afghanistan,and Iraq means anything to you; does Euro destabilization to be equal or stump on their up rising growth against the Dollar means anything to the largest war machine on the world.
      how one power take advantages of other if is not making a financial failure in the mix. wasn’t that the principal of the bursting bubble in the 30’s, then tested the measure of the power of our government to response on any given crisis like in the 80’s.. when wall street was playing around with futures? what have we learned. we have learn to be cautious, learn how to weather circumstances.
      when the Feds created the breezed for home owners from giving them a brake to be able to reinstate back to the home purchasing again. the feds and the bank said No we are not aloud to do that and we were to wait 4 years with Fannie Mae and three with FHA. again the feds thought they can manipulate the time frame to return those that either were kicked out by foreclosure or short sale their home from coming back to the buying table. bad news, they got so tight, that Not only banks don’t care to do any lending but to meet their (MLR) minimum loan requirement created by the same people that gave the banks Billions of Dollars to buy those banks that went under. see in the 1930’s they did it with rumors that banks didn’t have any money until became true. today they did it again by negating those banks loans extensions to recap and recuperate. Funny the biggest beneficiary are Fannie and Freddie. They said, “they will slow down the fast growth of houses been sold to prevent prices from rising, and to prevent an over flow of empty properties in any given area in the market” and we bought it… Well guess what!, due to their capacity to control the market Not (Real Estate)in such bad way, they not only are raising prices faster than any resale by investors who are more guarded when buying a house, and for sure selling it back to the community clean with a new fresh coat of paint and in much better condition for purchase by anyone STD, than its counterpart with foreclosures sold in the history of foreclosures. Not only the Freddie and Fannie are the bullies on the market but get this: this started slowly circulating around and am wondering what NAR thinks of these; they; meaning Freddie and Fannie, send a disclosure while a buyer is under contract to be signed by all parties when accepting their condition of contract in 2013. “The sale of the property Can Not and will Not be sold by the holder until after 12 consecutive months of being in possession as One’s primary property ( residence) and not to lease it to any one for same amount of time”. or a hefty $10,000 Dollars fine will be asesst to the violators (buyers). who purchased the property.
      So, what does this means to the regular joe that want to buy a destitute, decrepit property missing all the appliances cabinets, water heater a/c system etc. to be flipped after he has refurbished the property to a decent state of occupancy. I was at several home depot in different areas and for the past 7 years they had said to me when as I asked around the store how are keeping the store open if the construction has left town. their response “the people keeping them at float has been the house “flippers” SW Fla. The Bully of this time (Freddie and Fannie) are not equalizing the market, No, very much reverse, raising prices, contrary to what they preached three years ago. using canning tactics they think they have a handle in the untamed Real estate market. they may have it in the lending and wall street masters they respond to, but the immense pressure they place in us Realtor to sell it, while competing with others resell without offering zilch for the property they sale and are asking as if the destitute property they are selling worth as much as the one in moving condition resale..well it means that the investor ( the ones that has put america to work buying cash when the banks were not lending and lets never forget what that means) are not getting the homes they want to flip and those homes are staying three time longer in the areas without selling and looking augfall we talk about the twin towers taken down, this is your real twin towers a financial distress that 75% to 80% of american didn’t need to have from the local friendly lender down your street. we played by their rules. look hear people open your eyes- most of my buyers are refusing to buy Fannie and Freddie for they know what they are offering. do you think is a coincidence that the banks relaxed this year the QM for a purchasing a home. from four to three with Fannie and from three to one year with FHA Today.. why do you think there hardly any property available for leasing in the market, you control the flow of investors ability to flip and reduces the steady flow of homes ready to move in. did you know that since the feds changed the purchasing ability for flipping investors to almost 20% out 45% and prices has gone up 33% due to Fannie and Freddie tactics!, did you know that.i’ll give you a hint .how “inward steering ” sound to you? steering to only make you buy a Freddie or Fannie Mae home. they got their day in court in the 80’s for abusing it and I am sure they will be suet again. about the renters and the high prices of rent. it is not that good paying customers will go to the bad areas to rent, that has never been done, though it may happen, sure take down the meddle class and will see it. and if that would be the case think of these those nice things people are used to have clean yard, house painted, nice cars, that will still be available for them, and the block will be much nicer than before. you want to control what kind of people buy at your store, buy houses in nice areas… the one that can pay it. have you seen a nice meddle class area empty with bad people.. not both at same time.either good people live in it or bad people live in it, and the area will change completely no doubt. this is not about the 99% receiving from the 1% an unfair dealing. one get what one worked for..there others sneaky issues and violation of std real state practices are popping up with the short sale. let me know if any one is interested, and I ‘ll be happy to share it, it is all first hand experience all this year. with Ocwen servicing co.for their trio Mae, Fred and Mac. Merry Christmas!

  2. Nice article. I have personally seen a very strong market that’s not going away in my working class neighborhoods, with consistent rents of 850-1000 for single family homes priced at 30-50k. Still active tenant based, easy turn over times, and more than enough applicants so I’ve seen no reason to be worried at this time on having to lower the price.

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