It’s been a great few years for the multifamily market.
Demand has steadily increased for rental housing and, even though rent growth peaked in 2012, owners are still experiencing consistent, sometimes historic, growth in a number of markets. But as that rent growth marches on, and the for-sale market continues to revive, it's forcing many renters to reconsider the rent. vs. own debate.
“Now that the housing market is recovering, a lot of people are changing their minds on renting versus owning,” says Ryan Severino, senior economist and associate director of research at New York–based Reis. “I think it’s the landlords, with top-of-the-market rents, that are probably going to face the most competition as more and more of their renters sort of reconsider the rent versus own decision.”
But the consensus among multifamily professionals is that the single-family market doesn't pose much of a material threat—at least not this year.
Owning a home is still an attractive option to plenty Americans, but they’re remaining cautious about their personal financing post-recession, according to Fannie Mae’s November National Housing Survey results. Tie that in with high barriers of entry on the mortgage market, and you’re still left with a pool of consumers who will patiently remain renters for years to come.
“Although we expect a certain percentage of move-outs for this reason, there remains a significant barrier to entry for home ownership,” says Trent Brooks, COO of Newport Beach, Calif.-based Lyon Communities. “All-inclusive, the rental housing expense is materially less than the cost of homeownership.”
It’s still difficult to get a mortgage as underwriting standards are constrained: It’s hard to fathom a 15 or 20 percent down payment when finances are already tight for many renters.
Among the surveyed Americans in Fannie Mae’s housing survey, almost two thirds expect their finances to worsen in the next year. And many renters are paying more than 30 percent of household income on rent, leaving little room to save. They also expect mortgage rates to climb in the next year, following the recent interest rate spike.
In a similar survey, more than half of households surveyed by the Hart Research Associates early last year noted that renting was more appealing because of the current economic climate, despite the fact that a solid majority did aspire to own their own home in the future.
The amount of Americans who believe that now is a good time to buy a house has dropped significantly to a survey low of 64 percent, according to Fannie Mae. While unemployment remains high and incomes are falling, renting is seen as a flexible housing choice that allows households to adapt to unexpected circumstances, including finding a new job in a new city.
“It’s a choice that people are consciously making,” says Maitri Johnson, principal at Denver-based consulting firm Property Management Intelligence, and a former exec at single-family rental firm Waypoint Residential. “I think in some of these high barriers-to-entry markets are starting to resemble, very slowly, some of the European markets where home rentals are a choice, a conscious choice people are making as opposed to a necessity.”
But the industry may also be looking at homeownership from a biased view, and oversimplifying the issue, according to Sam Chandan, president and chief economist of New York-based Chandan Economics. Aside from financial reasons, there are lifestyle factors that aren’t being considered, such as the delayed years to marry and bear children, all significant reasons why Americans move to homeownership.
“As they grow families, they start to think about the access to high quality education,” Chandan says. “In most metro areas, public schooling in the suburbs is of higher quality.”