Rental Resurgence Marked by Single-Family Expansion and Diverging Affordability Trends
The housing bust and Great Recession have changed the supply and demand landscape of the housing market. In the latest edition of Housing Insights, Fannie Mae’s Economic & Strategic Research Group documents key housing market changes using recently released data from the Census Bureau’s American Community Survey (ACS). The analysis finds that homeownership rates continue to decline, particularly among young households; that single-family housing is absorbing a disproportionate share of new rental demand; and that housing affordability problems are mounting among young renters while easing for young homeowners.
As Homeownership Rates Fall, Single-Family Rentals Expand
Half a decade after the onset of the housing downturn, the shift from homeownership to renting continues apace. In 2011, the homeownership rate fell by nearly a percentage point, the fourth consecutive annual decline. The 2011 homeownership rate of 64.6 percent was 2.6 percentage points lower than in 2007.1
Young households have experienced outsized homeownership declines. Households headed by those aged 25 to 34 years and 35 to 44 years led the drop in homeownership rates among all age groups during both the most recent year and the last four years (Exhibit 1). Homeownership rates for these young households have fallen roughly twice as much as the rate for the overall population.
As homeownership rates have fallen, single-family homes have absorbed much of the increase in rental demand. Single-family detached and attached units accounted for 34.1 percent of the renter-occupied housing stock in 2011, an increase of 2.4 percentage points since 2007. The increase in rental market share for single-family homes was much larger than for any other building type and came largely at the expense of small multifamily buildings.
Differing growth rates across building types have shifted composition of the rental market toward higher-cost units. Single-family homes and apartment buildings with 50 units or more – building types that captured market share in recent years – have average rents that are at least $100 per month greater than small multifamily buildings, which lost share (Exhibit 2).
Affordability Deteriorates for Young Renters, But Improves for Young Owners
The shift toward higher-cost rental housing, when combined with lagging renter income growth2, may be exacerbating rental affordability problems. The proportion of renters paying at least 30 percent of gross income for housing expenses – here used to define an “affordability problem” – increased between 2010 and 2011. Conversely, the share of homeowners with affordability problems declined by nearly a percentage point during the same period. The decline among owners was solely a result of improved affordability for households with mortgages, reflecting declines in mortgage rates to record lows.
Affordability problems have increased rapidly among the youngest renters. Between 2007 and 2011, the share of renters under age 25 who have affordability problems increased by 6.2 percentage points, and the share for renters aged 25 to 34 grew by 4 points. During the same period, the proportion of homeowners in these two age groups with affordability problems declined by 4.3 and 5.8 percentage points, respectively (Exhibit 3). In fact, the 2011 share of owners in these age groups with affordability problems was lower than in 2005, prior to the onset of the housing bust.
Director, Strategic Planning
Economic & Strategic Research Group
November 15, 2012
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1 Several Census Bureau surveys provide homeownership rate estimates. Although these surveys portray broadly similar trends, they differ in detail. The ACS provides the substantial advantage of a huge sample size, which affords more precise estimates of homeownership rates for sub-national geographies and demographic subgroups than do other surveys.
2 ACS data show that growth in renters’ median household income has lagged behind increases in median gross rent during every year since the onset of the Great Recession.