Tag Archives: renting

“Small-time landlords still dominate the single-family-rental landscape” and have new tools

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One reporter argues the small landlords of today operate differently:

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Institutional investors — those with more than 1,000 homes in their portfolios — own about 426,000 of the 14.2 million rental homes today, John Burns Research and Consulting found. Most of those properties are in sunny Southern places like Atlanta or Raleigh. Small-time landlords still dominate the single-family-rental landscape, but these aren’t your mom and pop’s “mom-and-pops.” For one, the industry is vastly more transparent than it was in the early 2000s. If you want to see what comparable homes in your neighborhood are renting for, you can scroll through Zillow or visit the website of one of the institutional investors, such as Tricon Residential, Pretium, or Invitation Homes, all of which publicly list their properties and their asking rents. If even that sounds like too much work, companies including Buildium and Roofstock, known mostly for servicing the largest investors in the space, stand at the ready to offer property management and pricing advice — for a fee, of course…

Data on small landlords’ behavior is notoriously scarce, but the latest John Burns figures show that in cities with little to no institutional presence, the smaller landlords are the ones cranking up the pressure. Chattanooga, Tennessee, for instance, has practically zero homes owned by institutional landlords but one of the country’s highest rates of rent growth for single-family homes, with the typical asking rent for new leases up 10% in April from a year prior. Institutional investors own less than 1% of single-family rentals in Grand Rapids, Michigan, but asking rents there were up 8% year over year. In a similar vein, corporate owners may face the most scrutiny over evictions, but mom-and-pop rental owners are more likely to illegally evict their tenants, advocates for both landlords and tenants told Business Insider as part of a wide-ranging investigation into so-called “lockouts.”

Mom-and-pop landlords may not be required to detail their operations in quarterly calls with stock analysts, but most experts I spoke with agreed that even those who own just a handful of properties are getting more with the times…

There will always be some landlords who seek nothing more than a tenant who pays rent on time, doesn’t leave, and doesn’t pick up the phone to complain when something breaks down. For this subset, the onslaught of proptech companies and landlord software may seem like unnecessary money sucks. But others will recognize the need to compete with the more professionalized newcomers — the landlords, both large and small, who fix things on time, let you pay online, and, yes, raise rents accordingly.

If this argument is correct, then it sounds like the information now available to potential landlords and property investors – including for a fee – puts the potential resident at a disadvantage regarding price. Are there tools and information now available on the Internet and social media that help potential renters level the playing field? The potential democratization of information in this sphere may not have benefited everyone in the same way.

I also wonder at the role of expectations about returns on investment among smaller landlords. How much profit should they get? Are they providing a community good or are they hoping to cash out big and/or finance a particular lifestyle? As Americans as a whole expect more money from their houses, how have small-time landlords responded to this?

Learning about American housing through The Sims

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Playing The Sims may just offer a few lessons about housing in the United States:

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The Sims felt like a trial run for adulthood, exploring how you’d make use of your future autonomy. Much of this validated the importance of personal space: how to lay out a room, how to choose a sofa that balanced aesthetics and comfort, how to make a house a home…

The official trailer for The Sims 4: For Rent emphasizes the potential of “multiunit life,” promising “ample opportunity … [for] eavesdropping, snooping, or even breaking and entering”—a description that instantly evoked memories of my worst roommates…

Inevitably, a lot has changed. The peaceful suburb I remembered from childhood has been replaced by elaborate “worlds” that I can (effortfully, via a loading screen) switch between to grow my property portfolios. The Sims 4 is more immersive and finely drawn, visually, than the original was, but it’s also more involved: It took me a whole afternoon to create my first Sim and set her up in her “hovel.”…

But soon my frustration (as Edith) with Jazz’s requests started to outweigh my commitment to being the Only Good Landlord. Every notification from the rental instantly provoked my impatience. Not the damn tenant again! The slow, clunky transition within the game between Edith’s home and the rental only added to my frustration and my creeping sense of Jazz as a burden. Why did this guy need so much of Edith’s energy?…

With For Rent, The Sims has perhaps moved too far toward reflecting brutal reality, forcing players to choose between being on one side or the other of an often fractious and all-too-familiar power imbalance. As a child, I was drawn to The Sims as a role-play for adulthood, a world of expansive promise and possibility; playing For Rent, I was reminded, depressingly, of how the game is rigged.

The Sims is a game, a product intended to provide enjoyment for players. Can one gamify the rental experience in the United States?

More broadly, The Sims puts a home – owned or rented – at the center of the experience. The United States has a long history of celebrating the single-family home. Renting may be common in some places but it can also be treated with suspicion in other places. Players of the game can make their own choices but they are limited by what is possible in the game as well as what is possible in our society.

Anyone able to offer an analysis of housing, landlords, and properties in general across the Will Wright creations? Simcity offered a particular take as did SimTower – has this changed noticeably over the years? Are there any video games that do a different or better job of portraying property and renting?

My interpretation of what Americans mean when they say “renting is throwing away money”

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I recently read through some social media discussion of this particular phrase: “renting is throwing away money.” As someone who studies suburbs and housing, what do people mean in the United States with this phrase? Here are a few dimensions of this and some historical and social context:

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  1. In more recent decades, Americans have shifted to viewing homeownership more as a vehicle for investment and making money. Houses are not just places to live; people expect them to appreciate in value and provide profits over the years. (And in some places, homes have quintupled in value over several decades.) Renters do not get to share in this built equity while the landlord could cash out both in monthly payments and a sale down the road. If homeownership is primarily about buying a property to see it appreciate, then renters are missing out on this opportunity.
  2. However, homeownership in the United States is not just about making money. Homeownership signals something involving status, social class, and a commitment to a community. Homeowners have made it. Their ability to purchase a home is a signal of their industriousness and commitment to a community. They may raise a family there. Yes, they can sell the home down the road but they have bought into a particular place and put their money into a particular community. This is less about a personal return on investment and more of a marker of the homeowner and their ties to their neighbors and neighborhood.
  3. In contrast, renters are often treated differently than homeowners. They can be viewed as more transient and less interested in building up the local community. They may be assumed to be lower-income or less desirable residents for the community. Rentable units are a threat to community and single-family home property owners. (I have found this particularly true in wealthier suburban settings where opposition to apartments is often framed in terms of who might live there. More expensive apartments do not attract the same opposition even if residents still might be opposed to density, the height of the building, traffic, etc.)

Summing up: in an era with a hyperfocus on investment, homeownership can be viewed as a better long-term return on investment than renting. Additionally, Americans often view homeownership as more virtuous and more desirable for community life than renting. Put these together and there are long-standing concerns regarding renting and apartments.

Rents up in the suburbs

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Recent data suggests rents are up significantly in the suburbs and often faster than rents in cities:

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Rents in suburbs climbed 26% through this past July since March 2020, 8 percentage points higher than the gain in urban cores, according to a report from rentals website Apartment List. Suburban-rent growth was greater than its urban counterpart in 28 of the 33 metro areas studied, the company said…

The widest rent gap was in Portland, Ore., which lost nearly 3% of its population between 2020 and 2022. Rents in Portland’s suburbs are up 23% since 2020, compared with about 2% in the center city.

Moves to the suburbs have continued despite a historically difficult for-sale housing market. The number of existing-home sales in July shrunk to its lowest level for that month since 2010, and prospective buyers continue to struggle with 7% mortgage interest rates and sale prices that remain near records.

Rents for single-family homes, meanwhile, continue to grow in most parts of the country. House rents in the Chicago, Boston and Orlando, Fla., metro areas each rose more than 5% in June compared with a year earlier, according to data firm CoreLogic. Green Street, a real-estate research firm, predicts single-family-home rental landlords will post the highest returns of all real-estate owners this year.

Though apartment asking rents are declining slightly in 2023, on average that drop has been felt less in suburbs, Apartment List said. Rents in suburban towns around Charlotte, N.C., and St. Louis, for example, are still growing, while in adjacent urban cores, growth in rents now runs negative, when measured annually.

Traditionally, the suburbs are places with single-family homes. Renters can be viewed with suspicion.

Yet, social and economic conditions have pushed toward more rental units. There are fewer starter homes. Some people want flexibility rather than locking into higher interest rates and economic uncertainty. Single-family homes can be rented out and are not just occupied by homeowners. Denser suburban downtowns and population nodes can include more rental units.

Whether this persists long-term will be interesting to see. Will people shift from renting to owning when conditions are more favorable? Are more suburban communities open to rental units rather than focusing development efforts on single-family homes?

COVID-19, rents, and increases in household formation

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A new paper suggests an increase in household formation during COVID-19 has helped keep rent prices high:

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In this case, Ozimek and his coauthor, Eric Carlson, used heaps of 2021 census data to illustrate how housing markets in large cities were caught between two powerful, competing forces. The first was outbound migration, which led to weaker housing demand in city centers. Previous work by Stanford researchers Arjun Ramani and Nicholas Bloom found there was a “donut effect” earlier on in the pandemic, in which housing demand fell in dense urban areas as people moved to the surrounding residential areas and suburbs. Between July 2021 and June 2022, New York City lost a net 194,000 residents to migration, while Los Angeles lost 109,000, Chicago lost 88,000, and San Francisco shed about 20,000, an analysis of census data by John Burns Research and Consulting found. In the case of New York City, EIG’s latest analysis of data from the US Postal Service confirmed there hadn’t been a subsequent surge in people moving back to the city.

Instead, the sudden flight to the burbs was counteracted, Ozimek and Carlson said, by an equally startling surge in household formation. A household refers to any group of people living together in one unit — a family of five in a suburban home counts as one household, as does a group of three roommates living in an urban apartment. If those three roommates move out and each gets a one-bedroom unit, the net effect is two additional households. Before the pandemic, US household formation was on the decline. Between 2010 and 2020, the increase in the number of households was the lowest on record, an analysis by Pew Research Center found. Slow population growth and an increase in the number of adults living with their parents, perhaps as a result of the economy’s choppy recovery, meant there were fewer people striking out on their own. That changed shortly after the pandemic hit — household formation jumped by 2.5% nationally in 2021, more than double the fastest rate since the Great Recession.

This surge in household formation caused an increase in the “extensive margin of demand” — essentially, the total number of housing units that a given population desires. But EIG’s latest paper goes one step further, saying there was also an increase in the “intensive margin,” or the size and quality of units that people demand. Put another way, remote work led to an increase in the number of people wanting not only places of their own but also bigger homes. A couple might seek to upgrade from a one-bedroom to a two-bed, or they might look for a one-bedroom with more square footage. This desire to trade up is evident in the rent payments of people who shifted to remote work: Becoming a remote-work household in 2021 was associated with a 20% increase in rent payments, or about a $500 increase each month, the EIG researchers found.

Of course, those effects weren’t felt equally everywhere. To return to the “donut” analogy, the hole in the center — the most densely populated, expensive part of a metropolitan area — was likely to lose population as a result of more people working remotely. But it was also more likely to see a greater increase in household formation.

The headline for the story suggests this is about people wanting to live alone but the summary of the paper suggests people adjusted to changing work and economic conditions by seeking out more space for themselves. Did people seek their own household to get away from others or to have more space for themselves and work? If money was no object, would American residents prioritize more space or living with people?

I wonder how this connects to longer-term patterns of more American living alone.

American political leaders tend to be homeowners

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A recent study looked at how many political leaders in the United States are homeowners or renters:

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The researchers identified 10,800 representatives across city halls, state houses, and federal offices in 2019 and cross-referenced their home addresses with tax records. They found that about 93% of US senators, congressional representatives, federal judges, city council members, state senators, state representatives and governors definitely or likely owned a home.

In another sample of 1,800 city-level officeholders, the discrepancy between voters and their electeds was stark: For the 190 municipalities researchers examined, citywide homeownership rates were around 50%, while 83% of mayors owned their residences…

Despite these high-profile exceptions — both young people of color, like Azeem — researchers found that in city after city, the broader homeownership trend held, even in costly cities like Miami and Boston, where renters dominate. “There aren’t really any cities where large numbers of renters have been elected to local, state or federal office,” Einstein said.

The paper describes two “bottlenecks” that could prevent renter representation: Either fewer renters run, or fewer voters are willing to elect them. By analyzing the housing status of city council candidates in California between 2017 and 2018, they found that the former is more likely…

Elected officials are even more out of step with their communities when it comes to where and how they live. Researchers found that the homes occupied by local, state and federal officials were worth an average of 50% more than their zip code’s median value. The higher the level of public office, the greater the ratio. Nearly 80% of officeholders who owned their houses lived in single-family homes, while only 67% of houses across the country are considered single family.

Who will represent the renters in a country that loudly proclaims its preference for homeownership?

If you have a list of steps one needs to take to be a successful politician, add this one to early in the list: own a residence.

How exactly does wealth play into this? Does wealth lead to both homeownership and the possibility of running for office?

A possible follow-up study: do political candidates run markedly different campaigns given their homeownership status or do they generally play to the ideals of homeownership?

Argument: emphasizing homeownership for investment purposes as the ultimate American goal leads to worse housing outcomes

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Americans like single-family homes and especially owning a home that appreciates in value. What if this is the wrong way to go about providing housing?

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At the core of American housing policy is a secret hiding in plain sight: Homeownership works for some because it cannot work for all. If we want to make housing affordable for everyone, then it needs to be cheap and widely available. And if we want that housing to act as a wealth-building vehicle, home values have to increase significantly over time. How do we ensure that housing is both appreciating in value for homeowners but cheap enough for all would-be homeowners to buy in? We can’t…

Fundamentally, the U.S. needs to shift away from understanding housing as an investment and toward treating it as consumption. No one expects their TV or their car to be a store of value, let alone to appreciate. Instead, Americans recognize that expensive purchases should reflect their particular desires and that the cost should be worth the use they get out of them…

I should be explicit here: Policy makers should completely abandon trying to preserve or improve property values and instead make their focus a housing market abundant with cheap and diverse housing types able to satisfy the needs of people at every income level and stage of life. As such, people would move between homes as their circumstances necessitate. Housing would stop being scarce and thus its attractiveness as an investment would diminish greatly, for both homeowners and larger entities. The government should encourage and aid low-wealth households to save through diversified index funds as it eliminates the tax benefits that pull people into homeownership regardless of the consequences…

If we are interested in helping low- and middle-income people live well, we need to fix renting. Some potential policies include increasing oversight of the rental market, providing tenants with a right to counsel in eviction court to reduce predatory filings, advancing rent-stabilization policies, public investment in rental-housing quality, and, most important, building tons of new housing so that power shifts in the rental market from landlords to tenants. Even if nothing changes and America’s love affair with homeownership continues, tens of millions of people will continue renting for the duration of their lives, and almost everyone will rent for at least part of their life. Financial security, reliable and reasonable housing payments, and freedom from exploitation should not be the domain of homeowners.  

There is a lot to think about here. A few thoughts:

  1. Is the entire goal of the American system to generate money through property and ownership? Owning land and property has been very important from the beginning not only for what land could be used for and the money that could be generated but also because of status and rights attached to owning land and homes.
  2. Who is homeownership for? Consistently in American life, it is more available and profitable for wealthier white residents. Policies and ideals have promoted and perpetuated this.
  3. Given #1 and #2, renting is not just a difference in how one pays for their dwelling. It is a difference in how a person is regarded and what is viewed as ideal. The current system may have vast disparities in homeownership and the wealth generated by it but renting or renters is disagreeable to a good portion of Americans.
  4. Even if the goal remains to help adults in the United States attain homeownership, more could be done to address renting or obtaining a first property or addressing racial disparities in housing values. Ignoring renting means that it could limit people in the future from owning a home. Or, not having entry-level housing means people cannot easily move up. Or, help limit the disparities in housing values based on existing patterns. Promoting only homeownership is short-sighted.

The suburbs are about homeownership but some property owners see more money in rental units

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The American suburbs revolve around single-family homes. But, in recent years some property owners see more money to be made in converting housing units into rentals. Here is a recent example from Arlington Heights, Illinois:

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Interra Realty, a Chicago-based commercial real estate investment services firm, announced this week it brokered the transaction — equating to $242,500 per unit — for the property at 1 N. Chestnut Ave. The firm represented both the seller, the Chestnut Street Condominium Association, and the confidential buyer, according to the announcement…

“As long as there remains potent rental demand in desirable communities like Arlington Heights, I expect to see continued deconversion opportunities in select Chicago suburbs,” Interra Managing Partner Patrick Kennelly said in the company announcement. “This submarket, in particular, has become more of an investment target following headlines related to Arlington Park.”

If homes, single-family dwellings and otherwise, are now primarily about financial investments, is this one of the logical consequences?

Suburbanites can often have negative perceptions of renters and apartment-dwellers. How do residents of Arlington Heights feel about more housing units becoming rentals? Does it matter if the conversions are happening in or near suburban downtowns compared to in single-family home subdivisions?

If this continues to spread – and I saw numerous stories in the last few years about single-family homes turned into rentals as well – I would imagine there will be some concern and attempted regulations.

Compared to homeowners, renters stay in a residence for a shorter time

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I recently read how long homeowners and renters stay in a residence:

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Redfin reported that in 2021, the typical U.S. home changed hands every 13.2 years. According to ResidentRated, a renter satisfaction survey company, a typical renter will stay in a multi-family building for 27.5 months, or just over two years.

How might this be interpreted? Here is what came right before the data:

Although the rules have been relaxed and tightened over the years, the secondary mortgage market in the U.S. requires condo buildings to maintain a certain level of owner-occupied units in order to fund mortgages for buyers purchasing in those properties. If buyers can’t get mortgages easily for a condo unit, they will look elsewhere. That can depress prices for the entire property. (Over the years, the percentage of allowable units that may be rented has fluctuated from 50 to 80%. Fannie Mae’s current rate of allowed rentals in a condo building is 50%. )

Also, renters may be wonderful people but they don’t always make great neighbors. They may not take care of the overall property as carefully as a unit owner would, and the length of their tenancy tends to be shorter than the amount of time a unit owner lives in a home they own.

Are renters less desirable because too many rental units can affect property values and renters may not care for the residence and they do not stay as long? Having seen such arguments in my research on suburban settings, there are both perceptions about renters and systems regarding properties that contribute to the overall preference for homeownership. Renting may be necessary for some and/or for a time and/or in particular markets, but Americans overall privilege owners who in contrast to the sentiments above presumably stay longer, care more for their properties, and promote higher property values.

If renting is going to be more common in the United States – homeownership is down or stable in recent years, it is difficult to purchase homes or units in many markets – then it will be interesting to see if these ideas about renters change or if it only reinforces decades-long ideas.

Why it can take months for rent prices to show up in official data

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It will take time for current rent prices to contribute to measures of inflation:

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To solve this conundrum, the best place to start is to understand that rents are different from almost any other price. When the price of oil or grain goes up, everybody pays more for that good, at the same time. But when listed rents for available apartments rise, only new renters pay those prices. At any given time, the majority of tenants surveyed by the government are paying rent at a price locked in earlier.

So when listed rents rise or fall, those changes can take months before they’re reflected in the national data. How long, exactly? “My gut feeling is that it takes six to eight months to work through the system,” Michael Simonsen, the founder of the housing research firm Altos, told me. That means we can predict two things for the next six months: first, that official measures of rent inflation are going to keep setting 21st-century records for several more months, and second, that rent CPI is likely to peak sometime this winter or early next year.

This creates a strange but important challenge for monetary policy. The Federal Reserve is supposed to be responding to real-time data in order to determine whether to keep raising interest rates to rein in demand. But a big part of rising core inflation in the next few months will be rental inflation, which is probably past its peak. The more the Fed raises rates, the more it discourages residential construction—which not only reduces overall growth but also takes new homes off the market. In the long run, scaled-back construction means fewer houses—which means higher rents for everybody.

To sum up: This is all quite confusing! The annual inflation rate for new rental listings has almost certainly peaked. But the official CPI rent-inflation rate is almost certainly going to keep going up for another quarter or more. This means that, several months from now, if you turn on the news or go online, somebody somewhere will be yelling that rental inflation is out of control. But this exclamation might be equivalent to that of a 17th-century citizen going crazy about something that happened six months earlier—the news simply took that long to cross land and sea.

This sounds like a research methods problem: how to get more up-to-date data into the current measures? A few quick ideas:

  1. Survey rent listings to see what landlords are asking for.
  2. Survey new renters to better track more recent rent prices.
  3. Survey landlords as to the prices of the recent units they rented.

Given how much rides on important economic measures such as the inflation rate, more up-to-date data would be helpful.