The Joint Center for Housing Studies of Harvard University's The State of the Nation’s Housing report released this week verified a number of trends those in the housing industry have probably been seeing for while.
For one thing, renter households keep growing. The report said that from 2006 to 2010, renter households increased 692,000 annually on average, to 37 million. In the same time span, the number of owned households fell on net by 201,000 annually.
The report says that renters who have put off homebuying and homeowners who became renters again are driving this shift. Even as the number of households aged 25 to 34 increased one percent from 2007 to 2009, the number of households that bought their first house decreased 14 percent. The number of first-time homebuyers between 35 and 44 fell 21 percent.
“With home values still falling in many markets, even would-be homebuyers appear to be waiting on the sidelines until they are convinced that prices have bottomed out,” the report said.
Things could be moving too far the other way though. With rents for professionally managed apartments moving up 2.3 percent from the fourth quarter of 2009 to the fourth quarter of 2010 around the country (according to information cited from MPF Research), the Harvard report says that some renters could again start to think about buying. In particular, the report cites a Fannie Mae National Housing Survey that reported the percentage of renters saying they will probably continue to rent fell to 54 percent in the first quarter of 2011 from a peak of 59 percent in June 2010.
Supply Factors
The Harvard report also looked at new supply—an issue that apartment owners haven’t had to deal with the last few years. In fact, the Census of Construction reported that “completions of rental units in multifamily structures (with two or more units) dipped to their lowest level in 17 years, totaling just 124,000 in 2010 after averaging 224,000 per year from 2000 to 2008,” according to the Harvard report.
But the report also noted two trends that could create more competition. One has been occurring for awhile, in fact: the Harvard report says that single family homes are a growing part of the rental stock with 1.7 million additional households taking the single-family share of occupied rentals from 31.0 percent in 2005 percent to 33.7 percent in 2009. In fact, additions to the rental stock from new owner-owned construction between 2007 to 2009 totaled more than 1.8 million housing units.
“Overall, the shift of units from the owner to the rental market has more than offset the slump in new construction, explaining why vacancy rates rose despite the falloff in production and the significant influx of renters,” the report said.
One question arising from that data is whether many of those single family units are actually in areas where they compete with apartments or whether they are in more distant suburbs. One thing that’s not in question, however, is the multifamily construction market is starting to perk up, which will increase new supply.
In 2010, rental starts moved to just over 100,000 units hitting 101,000 (that was after a historically bad 2009, with 92,000 starts). Between 2000 to 2008, multifamily starts averaged 232,000 units per year as a point of comparison.
“The recovery in multifamily production is already spreading to a broad range of metros,” the report said. “In fact, markets in some of the states hardest hit by the foreclosure crisis posted some of the largest increases in multifamily permits in 2010, including San Jose, Los Angeles, and Miami. Other metros that saw a large jump in permits were Seattle and Chicago.”
Despite supply starting to perk up and the single-family additions to overall rental stock, the Harvard report concludes, like many others have, that the demand from the echo boom, baby boomers in rentals, and immigrants make this a good time to be a rental owner. But eventually home buying will return.
“With home price declines and low interest rates pushing affordability indexes to record levels, homebuying activity could siphon off some rental demand,” the report concluded.
