DS News

60 in the next decade and a half and the homeownership rate will decline even further, creating intense competition for rental housing, according to a recent study. e study, titled "Headship and Homeownership: What Does the Future Hold?" by Laurie Goodman, Rolf Pendall, and Jun Zhu, covers patterns of household formation and homeownership rates in the two decades from 2010 to 2030. ey concluded based on those estimates that "we do not have adequate policies in place to support the rental surge and adequate affordable rental housing and homeownership for all, regardless of race and ethnicity." e report makes special note of the role that Millennials will play. Widely viewed by economists as a potential key driver for homeownership in the coming years, they are expected to choose renting more often than homeownership in the next 15 years, perhaps for the very reason that Andrew is. Goodman and her cohorts estimate that only 38 percent of Millennials will own a home by 2030 when they have reached their prime homebuying age. Further, the homeownership rate among 35- to 44-year-olds is expected to be 55.2 percent in 2030, which is a decline from 67.4 percent 40 years earlier in 1990. e study also found that the pace at which new households are created has been steadily declining for every age group except senior citizens since reaching its peak in 1980 and will continue declining for the next 15 years. Overall, from 2010 to 2030, the Urban Institute estimates there will be 4 million more renters than homeowners while the homeownership rate falls down to 61.3 percent at the end of that 20-year period. In that time, 22 million new households will be created; they estimate that 13 million of those will rent while nine million will buy. ose 13 million new rental households create several opportunities for the industry. MEETING DEMAND e one opportunity is to meet the need for additional rental units by building more detached single-family homes. According to research by John Burns, CEO of John Burns Real Estate Consulting, more detached homes will be built for single- family rental to meet increasing demand for rental housing. Burns contends that for many years, resale homes have filled the demand for rental housing while builders ignored a significant share of the nation's households – 12.7 million out of 120 million, or nearly 10 percent – that rented a single-family detached home. "e 12.7 million detached home renters have largely been ignored by builders and developers for years as both supply and demand steadily grew over many decades," Burns said. "e vast majority of the growth of individually owned rental homes has historically come from households who lived in the home before relocating and decided to continue owning and renting the home rather than selling it." at number of 12.7 million detached homes currently in the single-family rental market comprise about 29 percent of the demand for rentals nationwide. Burns says that the single-family rental market has been "historically a mom-and-pop business," noting RentRange reported that about 54 percent of landlords who own single- family rental homes own only one home. e research, confirmed with CEOs from several institutional investors, found that renters generally live in detached homes because that is the lifestyle they preferred and that most of them did not even consider renting an apartment. He found that the three top reasons people lived in a detached home and rented were: Necessity, because they could not qualify for a mortgage; flexibility, because renting allowed them the flexibility to more easily move if they wanted to; and choice, because they would rather spend their money than save for a down payment on a mortgage. Due to the influx of new renters, the competition for single-family rental homes with the detached resale and new home market has created a need for new homes to be built for single-family rentals, according to Burns. "Clearly, there is a subset of renters who will pay a premium to rent new, as evidenced by the 200K+ apartment units that are built and leased every year," Burns said. "If it works for apartment developers, why has there not been much attempt to build single-family homes for rent? ose days are now ending." Burns cited several builders, including American Rental Properties, Starwood Waypoint, Lennar, and Rancho Sahuarita, who have expressed plans to build more single-family detached homes either to sell to investors or manage themselves. "Last year, approximately 25,000 detached homes were built for rent. We believe that "Our analysis shows that even in the unlikely event that income growth greatly outpaces rent gains, the number of severely cost-burdened renters will remain near current record levels." Christopher Herbert, Managing Director of the Harvard Joint Center for Housing Studies

• Cover