Rental Market May Reap Benefits from the Housing Slump

Today’s multi-housingnews.com news included an item about California affordable housing builder AMCAL focusing efforts on market-value apartments.

The company plans to build two this year. Why? According to Sid Paul, AMCAL Equities’ Vice President of For-Sale Housing, mortgage restrictions and dwindling loan options in California–which saw some of the greatest increases in property values before the housing slump and some of the biggest declines during it–are prompting more and more residents to rent.

"We’re seeing a void for workforce earners who may not be low wage earners, but who may have a need for rental properties," Paul told multi-housingnews.com.

Although the Wall Street Journal reported this week that U.S. home ownership has declined just a touch in recent years–it was 68.2 percent in the second quarter of 2007, down from a record 69.2 percent in 2004–the rental market, it seems, stands to benefit as the housing decline drags on.

Put simply:

  • Less buyers also means less housing demand. Reversions, which are condo buildings that have been changed back into rental units, exceeded condo conversions in the second quarter of 2007, according to New York-based research company Real Capital Analytics. That’s the first time that has happened since the 1980s.
  • Less buyers also means more renters. The current lending restrictions
    could wipe out 25 percent of the national housing demand, which will up
    the rental market, according to Todd Sinai, an associate professor of
    real estate at the University of Pennsylvania’s Wharton School.
    "One-time homebuyers will be relegated to renters because young
    households will have an even harder time amassing a down payment,"
    Sinai told Fortune Small Business.
  • Which is why more people are renting. Rents have risen 4 percent on average in the past year, according to the Bureau of Labor Statistics. That’s become clear in areas like Houston, where demand has driven rents up considerably. Last year, Houston renters were paying an average of $659 a month; this October, the average rate was $681, according to the Houston Chronicle.

Rising rents are often a big incentive to buy; but even if home prices are down, giving buyers a better deal, getting financing isn’t easy. Credit issues, low cash reserves and other factors can block potential buyers from getting a loan; the options just aren’t there for everybody as lenders tighten their regulations in the wake of the subprime crisis.

Bad news for home builders, but potentially positive news for rental property developers and owners–which may just be the first residential sector to benefit from the housing decline.