The new real estate boom: rentals

By BRIAN DAVIS

Editor's note: The following is a guest perspective.

Home prices and sales may be flat, but the rental industry is booming. The percentage of renters is on the rise, the number of households is increasing, and more Americans are downsizing, all of which point in a single direction: rents are on the rise.

At the peak of the housing boom, homeownership in America reached an all-time high at 69.2 percent. Today that number has plummeted to fewer than 67 percent, which may not sound like a huge drop, but that represents roughly 3 million households that were owner-occupied and are now tenant-occupied.

The high foreclosure rate has accelerated the transition toward leasing, but there are a myriad of other trends coalescing to boost demand for rental housing.

For the first time in 40 years, demand has been shifting toward smaller dwellings, coinciding with a shift in demand toward urban centers. Baby boomers are considering downsizing, moving toward areas with more amenities, and members of Generation Y are just hitting their single, urban-living years.

Only the relatively small Generation X is in the buy-a-large-house-in-suburbs category, which means the demand for the traditional single-family home with a white picket fence is weak.

The number of households in the U.S. was artificially stifled during the "Great Recession," as people took on roommates, moved in with family, or remained with their parents longer than they would have otherwise.

It's estimated that 1.2 million young adults moved back with their parents from 2005-10, which does not include the number of adults who moved in with roommates or those who would have moved out of their parents' houses but didn't because the economy was so bad.

Now, however, these artificially joined households are separating, the vast majority starting with a lease agreement.

Rental vacancy rates are sharply on the decline as well. In the first quarter of 2011, rental vacancy rates had dropped to 6.2 percent, according to Reis Inc., which tracks nationwide residency data. This figure is down sharply from the 8 percent vacancy rate just one year earlier.

That, of course, means that rents are on the rise. Reis tracks data for 82 metropolitan areas in America, and of those, 75 experienced increased rents from early 2010 to early 2011. Furthermore, the nationwide average rental amount rose from $967 in early 2010 to $991 in 2011.

Each of these indicators are entire topics in themselves, but the bottom line is that the rental industry is on the rise, and some real estate experts believe that its growth will accelerate rapidly over the next three to five years.

Apartment-building construction is already responding to the growing demand for rental housing, but with so many construction firms either out of business or licking their wounds, it's anticipated that there will be a rental housing shortage in many major cities around the country over the next few years.

Brian Davis is a veteran landlord and vice president of ezLandlordForms, which offers landlord information and legal forms.

                                         

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