Rental Housing: Poised for a Return to Growth Christopher Herbert Remodeling Futures Conference November 9, 21 www.jchs.harvard.edu
Summary of Ongoing Joint Center Research on The Rental Housing Market Overview of the Rental Market Current Market Conditions Increasing Affordability Challenges The Outlook for Renter Household Growth
Overview of the Rental Market
A Large Share of Rental Units are in Single Family Houses and Other Small Properties Share of Rental Units by Number of Units in Property, 21 5+ Units 3% Single Family 28% 5-49 Units 18% Condo 5% Manufactured Home 5% 2-4 Units 14% Source: US Census Bureau, Residential Finance Survey.
Individual Investors Own a Large Share of the Rental Housing Stock Share of Rental Units Owned by Individuals by Number of Units in Property, 21 All Types 5+ Units 5-49 Units 2-4 Units Manufactured Home Condo Single Family % 2% 4% 6% 8% 1% Source: US Census Bureau, Residential Finance Survey.
The Housing Stock is Older Than Ever, with Aging of Rentals Outpacing Owner Housing Median Age of Housing (Years) 4 35 3 25 2 15 1 5 1989 1999 29 Owner Renter Source: American Housing Survey, published tables.
Renters Are Younger than Owners, But Also Include Many Middle-Aged Households 7 6 5 4 3 2 1 Share of Households by Age 29 (Percent) Under 35 35-64 65 plus Renters Owners Source: U.S. Census Bureau, Current Population Survey.
Minorities Are a Higher Share of Renters, in Part Reflecting Importance of Immigrants Among Young Households 9 8 7 6 5 4 3 2 1 Share of Households by Race/Ethnicity 29 (Percent) White Black Hispanic Asian Renters Owners Source: U.S. Census Bureau, Current Population Survey.
Renters Are More Likely to Be Single Persons and Less Likely to be Married Couples Share of Households by Type 29 (Percent) 4 35 3 25 2 15 1 5 Single Person Other Single Parent Married with Married, No Children Children Renters Owners Source: U.S. Census Bureau, Current Population Survey.
Renters Are Disproportionately Low-Income, But Income Many Middle-Income Households 6 Share of Households by Income Quartile 29 (Percent) 5 4 3 2 1 Bottom Quartile Middle Quartiles Top Quartile Renters Owners Source: U.S. Census Bureau, Current Population Survey.
Current Market Conditions
Multifamily Starts Did Not Experience a Boom as in the Single Family Market, But Did Have a Bust Housing starts (s) 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 Single Family Multifamily Source: U.S. Census Bureau.
Low Volume of Multifamily Construction Reflected Lack of Growth in Renter Households Average Annual Household Growth by Tenure (s) 1,6 1,4 1,2 1, 8 6 4 2-2 -4 198-8484 1985-8989 199-9494 1995-99 2-44 25-99 Owners Renters Source: U.S. Census Bureau, Housing Vacancy Survey.
Less than Half of New Multifamily Completions were Market Rate Rental Units During Boom Multifamily Housing Units Completed in s 4 35 3 25 2 15 1 5 - LIHTC Market-Rate Rentals For Sale Source: JCHS estimates based on U.S. Census Bureau data on housing completions and U.S. Department of Housing and Urban Development data on LIHTC units placed in service.
Foreclosure Crisis Has Boosted the Flow of Single Family Homes into the Rental Market 1,2 Net Additions to Rental Housing Stock from Tenure Switching (Thousands) 1, 8 6 4 2-2 -4 1997-99 1999-1 21-33 23-55 25-77 27-99 Single Family Multifamily Source: JCHS tabulations of the American Housing Survey.
Vacancy Rates Have Been Up Sharply in Larger Rental Buildings, But Starting to Fall Rental Vacancy Rate (Percent) 13. 12.5 12. 11.5 11. 1.5 1. 95 9.5 9. 8.5 Single Family 2 4 5 9 1 or More Number of Units in Structure 25 26 27 28 29 21:Q3 Source: US Census Bureau, Housing Vacancy Survey.
While There Was Not a Boom in Construction, There Was a Boom in Multifamily Lending Outstanding Multifamily Debt in Billions 1, 9 8 7 6 5 4 3 2 1 Source: Federal Reserve Flow of Funds, adjusted d by CPI-U All Items.
Large Share of Lending Growth Fueled by GSEs, Followed by Commercial Banks and CMBS 3 Outstanding Multifamily Debt by Lender (Billions) 25 2 15 1 5 GSEs and Commercial CMBS Savings State and Life Other Agency Banking Institutions Local Govt Insurance 1998Q1 28Q1 Source: Federal Reserve Flow of Funds, adjusted by CPI-U All Items.
Lending Boom Helped Fuel Rapid Rise in Prices that Mirrored Rise in Single Family Prices 2 19 18 17 16 15 14 13 12 11 1 Price Index Multifamily Single Family Notes: Data are normalized to 1 in 2:4. Single family index is based on sales of 1-4 unit properties. p Multifamily index is based on sales of multifamily apartment properties worth at least $2.5 million. Sources: Moody's/REAL National Commercial Property Price Index for Apartments; S&P/Case-Shiller National Home Price Index.
Rise in CMBS Delinquencies Has Been Dramatic, While GSE Loans Have Performed Relatively Well 14 12 1 8 6 4 2 Share of Loans Delinquent or in Foreclosure (Percent) 27:1 27:2 27:3 27:4 28:1 28:2 28:3 28:4 29:1 29:2 29:3 29:4 21:1 21:2 Fannie Mae Freddie Mac Single Family Loans CMBS Banks and Thrifts Notes: Single family loans include loans for 1- to 4-unit properties. CMBS delinquencies include properties foreclosed but not yet sold. Delinquency rates are the share of loans by volume that are 6 or more days delinquent, except for banks and thrifts, which are the share 9 or more days delinquent. Sources: Mortgage Bankers Association, National Delinquency Survey and Commercial/Multifamily Mortgage Delinquency Rates; Moody's Multifamily CMBS Delinquency Tracker; Federal Deposit Insurance Corporation, Quarterly Loan Portfolio Performance Indicators.
Since 28, the GSEs Have Accounted for Virtually All of the Growth in Multifamily Debt Change in Outstanding Multifamily Debt by Lender 28:Q1-21:Q2 (Billions) 6 5 4 3 2 1-1 -2 GSEs and Agency Depositories CMBS State and Local Govt Life Insurance Other Source: Federal Reserve Flow of Funds, adjusted by CPI-U All Items.
Increasing Affordability Challenges
Renter Incomes Have Long Not Kept Pace with Rents, But Gap Widened Substantially in 2s 25 2 15 1-5 Real Change Over 1-Year Period (Percent) 5-1 -15 198-199199 199-2 2-2929 Median Renter Income Rent Fuel and Utilities Note: Income and price indexes are deflated using the CPI-U for All Items. Source: US Bureau of the Census, Current Population Survey and US Bureau of Labor Statistics, ti ti Consumer Price Index.
The Share of Renters Facing Cost Burdens Has Increased for Decades, But Has Spiked in 2s 5 Share of Renter Households (Percent) 4 3 2 1 196 197 198 199 2 28 Severe Cost Burden Moderate Cost Burden Note: Severe and moderate housing cost burdens are defined as spending more than 5% or 3-5% of pre-tax household h income on housing, respectively. Sources: JCHS tabulations of the IPUMS 196-2 Decennial Censuses and 28 American Community Survey.
The Increase in Renters with Severe Cost Burdens Has Been Evident Across the County 7 Share of 1 Largest Metro Areas (Percent) 6 5 4 3 2 1 Less than 16% 16-2% 2-24% 24-28% More than 28% Share of Renters with Severe Cost Burden 2 28 Notes: Renters with severe housing cost burdens pay more than 5% of household income for rent and utilities. Metros are the top 1 metros by population in 29. Source: JCHS tabulations of US Census Bureau, 2 and 28 American Community Surveys.
The Outlook for Renter Household Growth
Household Growth Should Return to Pre- Recession Levels Immigration Key Wildcard 1.5 1.4 1.3 1.2 1.1 1..9.8 7.7.6.5 Average Annual Household Growth (Millions) 1.15 1.37 1.38.7 1.18 1995-2 2-25 25-29 21-22 21-22 Low: Assumes Half of High: Assumes Census Immigration Census Projections Immigration Projections Notes: JCHS projections using 28 US Census Bureau Population projections. Sources: US Census Bureau, Housing Vacancy Survey; JCHS Working Paper W1-9.
Echo-Boom Generation Will Fuel Household Growth and Boost Rental Demand 22 Population (Millions) 2 18 16 14 12 1 5-9 1-14 15-19 2-24 Age Baby-Boom Generation in 197 Echo-Boom Generation in 25 Notes: Members of the baby-boom boom generation were born 1946-1964. 1964. Members of the echo-boom generation were born 1981-2. Source: US Census Bureau, Population Estimates.
Renter Household Growth Over Next Decade Should Be at Highest Since 198s Average Annual Household Growth (Thousands) 7 6 5 4 3 2 1-1 -2 198-84 84 1985-89 89 199-94 94 1995-99 2-4 4 25-9 9 21-22: 22: 21-22: 22: Low High Projections Note: Renter household projection assumes constant 29 homeownership rates from 29 Current Population Survey by age, race/ethnicity, and household type. Source: US U.S. Census Bureau, Housing Vacancy Survey; JCHS Household Growth Projections.
Changing Age Distribution of Renters Will Reflect Influence of Echo and Baby Booms 1,6 1,4 1,2 1, 8 6 4 2-2 -4 Projected Household Growth by Age 21-22 (Thousands) 15-24 25-34 35-44 45-5454 55-64 65-74 75+ Low Projection High Projection Source: JCHS Household Growth Projections.