One of the fastest-growing online service providers has been RealPage, whose cloud-based software helps more than 8,200 property owners to manage 7.5 million rental units.
Its CEO, Steve Wynn, told Investors Business Daily that he’s optimistic about his company’s future because of increasing demand for apartments. “Nothing is going to stop it,” he proclaimed. “Supply is not going to keep up with demand.”
Wynn estimates there are about 40 million rental units in the U.S., a number that jibes with estimates by the National Multi Housing Council (NMHC). That translates to a 34 percent share of total households in which nearly 99 million Americans live. The Joint Center for Housing Studies (JCHS) noted that the 1 million new renters in 2011 represented the highest increase since the early 1980s. “Barring a dramatic bounce back in homeownership, renter household growth should remain strong for some time,” JCHS projects.
The NMHC points out that single-family homes accounted for more than one-third of rental households in 2011. That portion is bound to increase, as private equity firms scoop up foreclosures and short sales from banks and the Federal Deposit Insurance Corp., and convert them to rentals.
“The institutional players are buying huge portfolios in Southern California, as much as 600 units per month,” observes Brett Whitehead, CEO of Irvine, Calif.–based Brandywine Homes. California’s homeownership rate—always about 10 percentage points below the national average—stood at 54.7 percent in the second quarter of 2012. The online real estate news portal First Tuesday Journal predicts it is “likely” that ownership in California will drop to 51 percent by 2015 or 2016, “and remain at that level for a decade or so.”
Renters account for nearly 68 percent of occupied housing units in New York; 62 percent in Los Angeles, and 54 percent each in Chicago and Houston, according to NMHC. The recent surge of renters outside of major cities can be attributed to the difficulty young would-be first-time buyers have had finding a job, saving for a down payment, and securing a mortgage.
There’s also a “new awareness” about costs related to owning a house that goes beyond the selling price, says Jane Hodges, author of Rent vs. Own, published in March 2012. “For many people, owning is more risk than return, especially if you don’t have control over certain variables in your life, like employment security.”
The psychology Hodges speaks of, coupled with unpredictable economic factors, may explain why renters are increasing at a time when home prices and mortgage interest rates are at their lowest levels in decades. Trulia, the property-search website, estimated that owning was, on average, 45 percent cheaper than renting in all 100 metros it analyzed.
Trulia’s calculations assume some things that don’t always match would-be buyers’ profiles, such as itemizing deductions at the 25 percent federal tax rate, being able to come up with the down payment, and planning to live in the house purchased for at least seven years. Trulia’s economist Jed Kolko acknowledges, too, that student debt and high unemployment “complicate” homeownership for younger Americans..
But Trulia’s larger point is one that most builders subscribe to: that owning is a good investment, and will be more so if rents, as predicted, continue to rise.
Axiometrics, a Dallas-based multifamily research provider, noted in October that effective rent growth had slowed for five consecutive quarters. Axiometrics expected 3.6 percent rent growth for 2012, and for that rate to increase in 2013 “based largely on improving job growth and renter household formation.” But markets vary widely; In San Francisco, rent growth hovered around 11 percent in 2012. And the occupancy rate nationwide has been rising for the past two years, to 94.5 percent in the third quarter of 2012.
Multifamily rental completions totaled 123,000 in 2011, the lowest level since 1993, according to JCHS. Meanwhile, through the first half of 2012, renter households increased at an annualized rate of 1,095,000, according to Census data.
Developers and builders are scrambling to catch this wave (see “Single-Family Vs. Multifamily”). So the future of owning versus renting boils down to supply and demand, and whether any imbalance causes rents to rise enough that renters who could become owners choose to do so.