Renting homes is overtaking the housing market. Here’s why
by: Bob Sullivan
Single-family rentals — either detached homes or townhomes — are developing faster than any other portion of the housing market. These rentals outpace both single-family home purchases and apartment-style living, according to the Urban Institute.
“Almost all the housing demand in recent years has been filled by rental units,” says Sara Strochak, a research assistant with the Urban Institute. She also states that single-family rentals have gone up 30% within the last three years.
This change is unique to newer generations. But when did rentals become so popular? And why are people more inclined to rent than to buy? Below, we’ll further discuss the rise in rentals and how it affects the housing market.
When did the rise in single-family rentals start?
The housing bubble collapse and the recession that followed shattered the decades-old tenet of American wisdom that you can’t go wrong buying a home. Most of the housing market fallout from the Great Recession has finally receded — foreclosures and underwater mortgages are back to traditional levels and housing values have recovered in most places. But one thing hasn’t recovered: Americans’ unquestioned desire to own a home.
Today, single-family rental homes and townhomes make up 35% of the country’s 44 million rental units, compared to 31% in 2006.
Who is leading this trend?
Millennials are leading the way to single-family rentals, and myriad factors contribute to this trend. Many young adults aren’t in a hurry to lay down roots, whether they’re prone to traveling or simply aren’t ready to commit to one area or one home. Student loans and stagnant incomes can also make it harder to save up for a down payment. And it’s inevitable that young people who came of age during the housing bubble would be reluctant to take a leap of faith and commit to a 30-year mortgage.
“While the age distribution of the U.S. population suggests most millennials are reaching the age of household formation and demand for single-family homes, much of this demand is likely to be channeled into the rental market,” says Strochak.