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Rental housing demand is likely to climb in coming years

According to a recent report prepared for the Bipartisan Policy Center in March of 2012 it concludes rental housing vacancy rates have declined substantially in the past two years, and rents are increasing.

This trend has come about because of a dual set of pressures.

First, working-age adults 35 years and older either have shifted from owning homes to renting or are delaying the transition to homeownership.

Second, Echo Boomers are maturing into adulthood, entering the housing market and searching for rental housing.

As the economy and the housing market recover, older adults can be expected to shift back into homeownership. Even as this shift occurs, however, demand for rental housing will remain strong for several years because of continued household formation by Echo Boomers.

Even with higher levels of rental-housing demand from 2010 to 2020, however, the most pessimistic demographic scenario developed here would result in national homeownership rates above 60 percent between now and 2030.

ECHO BOOMERS WILL CONTINUE TO FUEL DEMAND FOR RENTAL HOUSING

The Echo Boom consists of young adults aged 15 to 29 in 2010; it includes the nearly 65 million people born between 1981 and 1995. By comparison, the Baby Bust generation – those aged 30 to 44 in 2010 – numbers only 61 million (despite the fact that this age group includes a relatively large number of immigrants). In 2010, the population of 15- to 19-year-olds totaled more than 22 million, 20- to 24-year-olds totaled 21.5 million, and 25- to 29-year-olds totaled 21.1 million.

The generation trailing the Echo Boom – those under 15 in 2010 – is about as large as the Baby Bust is now, with 61.2 million members; however, this young generation will continue to grow as immigrants join their ranks.

Against the backdrop of persistent vacancies, foreclosures and delinquencies in owner-occupied housing, some observers have announced the arrival of a “rentership society.”

Rental vacancies have declined and asking rents are at higher levels than before the housing crisis began.

HUD has documented an increase in “worst case housing needs” among renters – that is, a growing incidence of households that are paying over half their income for housing, primarily as a consequence of the withdrawal, upgrading, conversion and demolition of rental units from the most affordable segments of the housing stock.

Projections that assume 2010 rates of household formation and homeownership will extend unchanged to 2020 underscore the possibility that the nation will require large amounts of rental housing to meet demand for the remainder of the decade.  The scenarios described above suggest that – depending on the strength of the housing market and economic recovery – between five and six million new renter households will form over the next decade.

Almost all of this increase reflects demand from the Echo Boomers. The medium scenario yields a net increase of about 5.4 million renters, about 400,000 more than the increase in renter households between 2000 and 2010. The high scenario (whose assumptions reflect the economic and housing market conditions of the 1990s) would yield less demand for new rental housing, about 4.8 million units in all; the low scenario (whose assumptions reflect economic and housing market conditions of the 2000s) would result in rental demand of almost six million net new renter households.

Growth in demand for rental housing between 2020 and 2030 is likely to be somewhat smaller than in the current decade, simply because the Echo Boom generation is likely to be transitioning in large numbers to homeownership by then.

ABOUT BPC

Founded in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell, Bipartisan Policy Center (BPC) is a non-profit organization that drives principled solutions through rigorous analysis, reasoned negotiation and respectful dialogue.