Demand for rentals is still strong—but what does it look like today, a decade after the recession?
According to America’s Rental Housing Report, recently released by the Joint Center for Housing Studies at Harvard University, demand is evolving. In the aftermath of the crash, demand exploded, and a large portion of rentals were single-family homes. Now demand, though largely out of necessity, is becoming motivated more by preference.
Americans who can afford to buy a home, for example, are opting to rent. In 2016, 6.1 million (or 18 percent of) renter households brought in more than $100,000 a year, the report shows; in 2006, only 3.3 million (or 12 percent of) renter households earned $100,000-plus.
Additionally, the makeup of renters is shifting. The majority of renters are single, but there are now more renter households that contain families with children than there are owner households that contain families with children (33 percent versus 30 percent). Moreover, the median age of renters has gone up to 40 years old, and one-third are 50 years old or older. Their backgrounds are diverse, as well: 20 percent of renter households are foreign-born, and 47 percent are minorities—a distinction from owner households, which are predominantly white.
This changing demand has been met with higher-end (and higher-priced) units; in fact, 40 percent of all additions to the market in 2016 rented for $1,500 or more, up from 15 percent in 2001, while 18 percent in 2016 rented for less than $850, down from 42 percent in 2001.
Lower-income renters, however, still, represent a significant share, and the discrepancy is extending them beyond their means, foiling any goal of owning. More income is needed to buy a home than rent one in the majority of markets: 29.8 percent of a household’s income monthly, versus 25.4 percent, according to data from realtor.com®.
Affordability—the lack thereof—has other implications for ownership. Homebuyers facing limited options have investors to thank, at least partly, for the shortage of supply.
“For the past 10 years, the number of single-family homes that are rented has grown steadily and remains near the highest levels ever recorded,” says Aaron Terrazas, senior economist at Zillow. “The combination of foreclosures and growing rental demand following the housing crash was an attractive opportunity for investors large and small who were able to buy foreclosed homes and use them to meet the rental demand.
“At the same time, many long-time owners have opted to hold onto their homes as rentals even after they decide to move somewhere else,” Terrazas says. “With such a large portion of single-family homes being rented out, and with new homes being built more slowly than the market needs, home values will continue to rise, particularly among the most affordable homes with the highest demand.”
Annual home sales, markedly, were cut by 270,000 due to the single-family rental surge, according to an analysis by Zillow.
With demand morphing and inventory strained, questions remain. To address the lack of lower-cost options, the Joint Center for Housing Studies calls for collaboration, including subsidies.
“This year’s report paints a complicated picture of the rental market,” said Christopher Herbert, managing director of the Joint Center for Housing Studies, in a statement. “We’re finally seeing the record growth in renters slow down, but while the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes. Addressing these challenges will require bold leadership and hard choices from both the public and private sector.”
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