A Nation of Renters? Not Likely.
I was a speaker at the 2011 PCBC in San Francisco last summer, attended several panels and spoke to a lot of my colleagues in the building industry. Almost everyone I spoke to at this conference considered themselves survivors: We’ve made it through this. We’re going to come out the other side and be okay in the end. The reality in 2011 is that things are not as good as we had hoped they would be, but instead of analyzing the past and swapping war stories about the housing crash, the predominant theme was “Where do we go from here?”
Everyone had ideas – some of them were even good ones – but the most surprising thing I heard from many speakers on different panels was that we have become a nation of renters. They see a trend away from home ownership toward rentals that will last not just years, but decades, if not forever. They cite a shift in lifestyles, distrust of home values and changing demographics. They predict that owning a home will no longer be part of the typical American Dream.
I think they are wrong. To look at what is happening today and assume it will continue indefinitely is myopic and short-sighted. The drop in home ownership – accompanied by the rise in rental demand – is all part of the real estate cycle and it will change. Today, more people are living in apartments because rents are cheap and homes are not appreciating. As soon as the jobs come back and consumer confidence returns, people are going to start to unbundle. There are millions of people living with people they don’t really want to live with: kids living with parents, parents living with kids, young professionals tired of having roommates.
Once they start to move out and get their own place – even an apartment – that is going to put pressure on rental vacancies, which will push up rents. When the cost of renting is no longer such a good deal, especially considering the tax benefits of owning, they’ll start to reconsider. Once home values begin to recover and their friends are talking about how their house is now worth 20 percent more than when they bought it, those “long-term renters” are going to move back towards ownership. Despite the risk of another down cycle, most people in America would prefer to own a home where they can make changes and stay as long as they want, rather than be at the mercy of a property owner.
The question is how long will it take for the cycle to play out? I think we’re already starting to see the first stage of the recovery in core areas, especially markets like the San Francisco Bay area, which is gaining jobs and already experiencing lower vacancies and an increase in rents. Last year at PCBC everyone was saying the recovery was 18 months out; this year they said the same thing. But I am confident about one thing – the housing market won’t stay down forever.
By Michael M.