More than 500 mid-size and large cities in the US have seen an increase in the number of rental homes, and nationally this percentage has increased from 33.8% in 2000 to 34.9% in 2010.
This increase comes in the aftermath of the housing market collapse, as nearly 4,000,000 homes have been foreclosed on during the past five years. A substantial number of these homes have become rentals or are likely to be sold on to buy to let property investors.
According to economists, this shift away from home ownership has long-term implications for neighborhood stability, and will also affect the way people accumulate wealth.
Several large cities saw quite extreme shifts from owner occupied homes to rental homes, including Irvine, California where percentages rose from 40% in 2000 to 49.8% in 2010, Philadelphia which saw an increase from 40.7% to 45.9% and Birmingham, Alabama where rentals increased from 46.3% to 50.7%.
It’s no real surprise to learn that cities in the states of Florida, Arizona and California saw the greatest increases of renter occupied housing.
According to Daniel McCue, senior research analyst at Harvard University’s Joint Center for Housing Studies, the rental market was fairly stable from 1990 up until 2006. Since this date the number of households who rent has grown by an average of 692,000 a year while the number of owner occupied households has dropped by around 201,000 a year.
Mark Zandi, an economist at Moody’s Analytics expects the trend for rental growth to continue for several years to come, due to the high numbers of foreclosures, the continuing fall in house prices and potential cuts to government subsidies.
Although the percentage of renters is rising a recent survey by Fannie Mae showed that 74% of those renting still feel that homeownership is better. With more people choosing to rent there is increased pressure on rental supply, which in turn is leading to higher rents.
Paul Dales a senior US economist for Capital Economics Ltd in Toronto expects rental yields to climb to their highest levels for more than 20 years and predicts that they will remain high for up to 4 years.