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The Built-for-Rent Market – a Temporary Phenomenon?

by Peter Thomas Ricci

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The built-for-rent portion of the single-family home construction market has doubled since 2008, but is it temporary?

The surging residential rental market – and the uptick in multifamily construction that has accompanied it – has been one of, if not the biggest outcomes of the post-boom housing market, and according to recent data pulled from Census Bureau’s “Quarterly Starts and Completions by Purpose and Design,” single-family homebuilders are also getting in on this rental trend.

Built-for-Rent Market at Historic Highs

As the always excellent Steve Cook described it on Real Estate Economy Watch, the built-for-rent segment of the single-family home construction market has been at historic highs the last two years:

  • The market share for single-family, built-for-rent homes in 2012’s third quarter was 5.1 percent, just under the 5.35 percent at the beginning of 2011.
  • Though it seems like a low number, Cook points out that the 20-year average of built-for-rent single-family properties is just 2.7 percent, meaning that since the housing market slowed in 2007-08, the built-for-rent market has doubled.
  • It’s also interesting to put that 5.1 percent next to the current single-family housing inventory; according to the 2010 American Community Survey, single-family housing makes up 27 percent of the nation’s rental housing stock.

Renter Nation? Think Again

So what does all this mean for housing construction? After all, yesterday’s data on housing starts confirmed that we’re currently seeing historic levels of multifamily construction: since 2005, apartments’ share of new construction has doubled; apartment construction starts for 2012 exceeded those of 2009 and 2010 combined; and finally, multifamily units made up 30 percent of 2012’s housing starts, the highest market share for multifamily construction in more than 20 years.

With those stats in hand, there have been numerous analysts that have jumped on the multifamily bandwagon, claiming that in the wake of the housing bubble, a new generation of professionals are eschewing homeownership for renting, giving way to the “Renter Nation” meme that has proven so persistent in the last couple years.

Though there are studies that suggest the apartment boom may be waning, probably the most persuasive debunking of the “Renter Nation” meme came from the folks at Trulia, who found the American zeal for homeownership strong as ever in their American Dream Survey. Not only did Trulia find that 31 percent of renters plan to buy a home in the next two years (that’s a nine-point increase from January 2011), but also that 93 percent of millennials who rent plan on purchasing a home, and 72 percent of all millennials consider homeownership part of their American Dream.

So what’s your take? Is renting here to stay, or as Trulia’s survey suggests, is the current renting surge a temporary blip?

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