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February 26, 2015

Three charts that explain the renters next door

February 26, 2015

One of the unexpected legacies of the mortgage crisis has been the replacement in many neighborhoods of single-family homeowners with renters. But who exactly are these renters and which homes are they renting? We’ve taken a closer look at the 14.2 million single-family rental units in the US today and found that renters are living in smaller, older and slightly less suburban homes than homeowners, and are poorer, more racially and ethnically diverse and younger than homeowners.

A product of the crisis

From 2007 on in the aftermath of the mortgage crisis, investors (mostly small) bought many of the 7.5 million owner-occupied homes that were in foreclosure or had experienced a short sale, and converted them to rental properties. Many factors sweetened the environment for investors—tight mortgage credit, a large inventory of single-family homes, and continued high demand for such properties among families who could not afford or qualify for a purchase loan.

The result was a huge increase in the number of occupied single-family rental properties in the aftermath of the crisis, from 10.5 million units in 2005 to 14.2 million in 2013, a 35 percent increase, according to the American Housing Survey. Rental units comprised 61 percent of the 6.1 million unit net increase in single-family housing stock from 2005 to 2013, with the remainder split between vacant single-family units (21 percent) and owner-occupied single-family units (17 percent).

Distinct housing stock and demographics

Although many formerly owner-occupied single-family homes became rental units over the course of the downturn, there are notable differences in housing stock characteristics between single-family owner- and renter-occupied units. The single-family rental stock is smaller, older, and slightly less suburban than the owner-occupied stock. The median square footage is far lower in the single-family rental stock than the owner stock (1,364 vs. 1,878), as is the share of unit with three or more bedrooms (65 percent vs. 85 percent). Single-family rental units have a median construction year of 1965, compared to 1975 for their owner-occupied counterparts.

And while the single-family rental trend is often characterized as predominantly affecting suburban areas, 34 percent of single-family rental units are located in the central city of a metropolitan area, as contrasted with just 23 percent of single-family owner-occupied units. This places the single-family rentals midway between rental housing units overall, 43 percent of which are in central cities, and owner occupied single-family housing.

The demographics of single-family renters suggest this group bears more resemblance to the population of renters overall than to single-family owners, with a high poverty rate, significant racial and ethnic diversity, and relatively small share of elderly householders. About a fifth of single-family renters are African American non-Hispanic, and another fifth are Hispanic. For renters overall, the African American and Hispanic shares are slightly higher than for single-family renters, but for single-family owners, they are far lower, both less than 10 percent. About 24 percent of single-family renters are below the poverty level, slightly less than renters overall but again far higher than among single-family owners. Only 1 in 10 single-family renters is 65 or older, compared to 13 percent of renters overall and 28 percent of single-family owners.

Single-family homes have long comprised a significant share of the rental market (about a third of occupied units in the years preceding the housing bubble), yet the growth in the single-family market in the past decade is astonishing compared with the growth in multifamily renting. Rental households in structures with 2-4 and 5-19 units have grown somewhat as well, but the number of renters in larger multifamily structures has remained relatively flat.

In part, the discrepancy reflects the mismatch between the supply and demand of rental housing. Amid high demand for rental housing, the excess supply of formerly owner-occupied single-family homes could be converted to profitable rental properties with relative ease in many regions. But in the multifamily space, there was no comparable excess supply. We need additional research to learn more about the households and communities most affected by the single-family rental trend, and to better understand the implications for the housing market going forward.

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