Report: No-longer-potential homeowners turned to rentals in housing bust
On the bookcase in my younger son's bedroom sits a pile of earbuds that would take probably a day or more to unravel to make them usable.
On the bookcase in my younger son's bedroom sits a pile of earbuds that would take probably a day or more to unravel to make them usable.
What do I need with 20 earbuds, right?
Such a task is analogous to writing about the residential real estate market, especially since the housing bubble burst in 2006-2007. Today's example: A report by the Mortgage Bankers Association of America on the reasons why there is what the group calls "an affordability crisis" in rental housing.
"Demand for rental housing has greatly outstripped supply, rapidly pushing vacancies down and rents up even as incomes fell," said Lynn Fisher, the group's vice president for research and economics. "The supply is still trying to catch up with the demand."
We see that in the Philadelphia region, of course. Even with 5,400 mostly market-rate rental units being completed this year, and 3,400 completed last year, the vacancy rate is only 4.6 percent, and average monthly rents will rise 3.1 percent to $1,222 in 2016 from 2015, according to real estate investment services firm Marcus & Millichap.
Fisher said that in the middle of the last decade, just as millennials were expected to begin forming their own households and increase demand for rental housing, "the supply side of the market stalled due to the turmoil in credit markets." At the same time, people diverted from ownership piled into the rental market, she added.
"The single-family rental sector certainly grew, but was only able to accommodate some of the increase," Fisher noted.
The analysis of the rental market was conducted by Dowell Myers, Gary Painter, Hyojung Lee, and JungHo Park of the Sol Price School of Public Policy at the University of Southern California.
Their take: "The most visible indicator of the rental housing crisis is the record-high affordability problem created by rising rents while renters' incomes have declined."
Yet the evidence presented in the report suggests the root of the problem is that many more renters have been added than were expected, according to the trends before 2006.
"Growth in renters came from the arrival in adulthood of the large millennial generation, but an even larger source of growth came from would-be homeowners who were diverted into renting," they said.
Some key findings:
A sharp downturn in homeowner growth since 2006 suggests that six million would-be owners (the expected number compared to actual) have been shifted to renting or have left the housing market. Those households triggered a cascade of adjustments through the rental-housing sector that are measurable in different ways.
A sizable portion (roughly one-third) of the diverted homeowners likely have been absorbed into single-family rentals, especially among households ages 25 to 54.
Although larger than expected, growth in the rental-housing sector (including single-family rental) was too small to account for both the expected rental growth and also the large number of diverted homeowners. Before disruptions to the owner-occupied housing market, the rental sector had been expected to grow by 4.4 million occupied units after 2006, due to the arrival of the large millennial generation.
Though diverted homeowners resulted in demand for nearly six million additional rental units, rental housing only grew by 5.2 million.
Slightly more than five million otherwise-expected renters left or never entered the housing market, their growth displaced by the diverted homeowners, and diminishing overall household growth far below expectations.
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