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CoreLogic Chief Economist Perspective- July 2015

Rental Remains Robust

Frank Nothaft    |    Housing Trends, Videos

 

A vibrant rental market has been an outgrowth of the Great Recession and housing market crash. Apartment vacancy rates are down to their lowest levels since the 1980s, rental apartment construction is the most robust in more than 25 years, rents are up, and apartment building values are at or above their prior peaks. But the rental market is more than just apartments in high-rise buildings.

Apartments in buildings with five or more residences account for 42 percent of the U.S. rental stock. Additionally, two- to four-family housing units comprise an additional 18 percent of the rental stock, and one-family homes make up the remaining 40 percent.1

The foreclosure crisis resulted in a large number of homes being acquired by investors and turned into rentals. Between 2006 and 2013, three million single-family detached houses were added to the nation’s rental stock, an increase of 32 percent. The increase in the single-family rental stock has been geographically broad based, but has impacted some markets more than others.

In metro areas that were particularly hard hit by the housing crash, such as Phoenix and Las Vegas, the number of single-family houses in the rental stock almost doubled between 2006 and 2013. Some metropolitan areas, such as Dallas and Atlanta, had a smaller percentage increase, but by nature of their larger size, had close to 100,000 houses added to their rental stock during that seven-year period.2

While the growth in the rental stock has been large, so has been the demand. Some of the households seeking rental houses were displaced through foreclosure. Others were millennials who had begun or were planning families, but were unable or unwilling to buy.

Strong demand for rental houses has also translated into rent increases, especially in markets with strong employment growth and that have attracted younger households.

Large metro areas along the Pacific Coast, such as Los Angeles, San Francisco and Seattle, have seen rents rise about 10 percent or more over the past year for single-family detached homes. These areas have traditionally been high-cost, and they have become even more expensive. Nationally, the median rent for a three-bedroom house rose 4 percent over the past year, which is faster than overall inflation. While rents rose in most markets, some were stagnant or declined as demand could not keep up with the additional supply. For example, the median rent for a three-bedroom house in the Detroit area declined by 4 percent over the past year.

The outlook for the rental market remains robust since we expect household formation among millennials to strengthen, and their first home will likely be a rental and often an apartment. The large number of millennials also means that rental housing demand is likely to remain strong for the next few years, and as millennials begin to form their own families, demand for single-family rental homes may remain strong as well.

[1] Manufactured housing was included in the one-family home figure. Manufactured housing comprises 5 percent of the nation’s rental stock.

[2] Exhibit 2 presents analysis of the Census Bureau’s American Community Survey prepared by Sam Khater.

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