Single-Family Rentals Have Risen to Nearly a Third of Rental Housing
According to the Census Bureau, the national homeownership rate dropped again in the second quarter of this year, to 63.4 percent. This level represents a nearly 50 year low, and continues the trend of declining homeownership that has been in effect since the end of the mid-2000s housing boom (see my previous blog post on this topic). The flip side of lower homeownership rates, however, is higher shares of households renting their homes. Indeed, rental housing is now more in demand than it has been for decades. While new construction of rental units has picked up in response to this demand, the majority of it has been served by conversions of existing units from owner- to renter-occupied, mostly from the single-family housing stock. As a result, since 2006 the number of single-family detached homes occupied by renters has increased by a third, from 9 million to over 12 million (Figure 1), and now accounts for 29 percent of all rental housing.
My newest paper takes a new look at single-family detached rental housing, exploring the ways in which the stock and residents of these units differ from other rental housing, and how they have changed over the last decade. It finds that single-family rentals offer an important alternative to single-family owned and multifamily rental housing. Specifically, single-family rentals allow their residents to reap many of the advantages of single-family living, such as larger units than typically found in multifamily housing, while retaining the affordability and flexibility that makes renting an attractive option to households that do not or cannot own. Because most single-family rentals were formerly owner-occupied, however, they tend to be smaller, older, and have fewer amenities than currently owned single-family units (Figure 2).
While the characteristics of single-family rentals align closely with those of single-family owned units, residents of these homes more closely resemble other renter households. For example, the share of minority households among single-family detached renters (39 percent) is closer to the share among multifamily renters (48 percent) than among single-family detached owner-occupants (21 percent). The same is true of the age distribution of households; 30 percent of single-family renters are under age 35, compared to 38 percent of multifamily renters in this age group but only 10 percent of single-family owner-occupants. The pattern breaks down by family type, however, as single-family detached rental units stand out as having the highest share of families with children (Figure 3).
While single-family rentals have characteristics that are different from single-family owned and multifamily rental units, also of interest is how these units have been changing as they have grown to become a larger segment of the rental stock. Looking at these changes over time may provide some insights into whether the recent surge in single-family detached rentals is a harbinger of housing demand going forward, or a temporary reaction to the downturn in the housing and home buying markets. Most changes observed over time in the structures themselves, for instance, reflect the evolution of single-family housing in general, which continually replaces smaller, older units leaving the stock with larger and newer units in desirable locations. Some changes in the characteristics of single-family renter households, however, do not follow the same trends as in all households. One notable example of this is the share of middle-aged households (i.e., headed by someone age 35-54), which has been declining in recent years among all housing types except single-family rentals (Figure 4). The same is true of families with children, who generally prefer the features associated with single-family housing, even if they do not or cannot own their homes.
It is unlikely, however, that these shifts represent a permanent change in the rental market. The middle-aged and family households that account for large increases in single-family rentals are traditionally those most active in the trade-up and first-time home buying market. If economic conditions change in the near future such that home purchases become affordable and attainable to more households, these new classes of single-family renters will probably be among the first to seize their chance to own their own home. In such an event, detached single-family units will decline as a share of all rentals, though likely only back to their former level of around a quarter of the stock, as these units will continue to provide alternative to multifamily rentals and single-family homeownership, and a necessary component of the national housing stock.