Is the Dream of Homeownership Dead? Demand for Rentals Continues to Grow

Is the Dream of Homeownership Dead? Demand for Rentals Continues to Grow

While much has changed since the bubble burst a few years ago, one trend has continued to exist throughout the real estate market – an increased demand for rentals. Though many experts once expected this trend to die down over the years, the demand for renting has in fact continued to increase, despite lower prices and declining mortgage rates. Now, many RE professionals are left asking the question, “Is the dream of homeownership dead?”

According to a recent study from the NYU Furman Center and Capital One, nine of America’s eleven largest cities are now populated by a majority of renters – up from just five cities in 2006. As you might have expected, both Los Angeles and San Francisco fall into this group.

In addition, nine of the eleven cities tracked also saw double-digit growth in the number of renters between 2006 and 2013, with five cities exceeding 20%. San Francisco saw a growth of 22% during this time span, while Los Angeles saw a more modest 11% increase.

It’s no surprise that with demand for rentals going up, prices are increasing too, but in many markets incomes are lagging far behind. In Los Angeles, the gross median rent increased by 11% while the gross median income dropped by 4%. Naturally, these changes have led to severally rent burdened tenants, some of whom face rent and utility costs equal to half of their income or more.

In Los Angeles and San Francisco, over 38% and 26% of moderate-income renters were burdened by rent respectively. Similarly, 28% of moderate-income renters could afford less than one third of the recently available units across Los Angeles, with 25% of renters in the same position in San Francisco.

“As the number of renters grow, if the supply of rental housing does not keep up—as it has not in most of these cities—then vacancy rates will fall, rents will rise, and more renters will struggle with the costs of housing,” said Ingrid Gould Ellen, the Furman Center’s faculty director.

But if renters are having trouble affording rent, how can they afford to buy a home?

“For many people, the biggest obstacle to buying is saving enough for a down payment, which is more difficult if you’re paying a lot of rent,” said Trulia’s chief economist Jed Kolko.

Do you think demand for rentals will continue to grow across California? Has the American dream of homeownership been cast aside? We’d love to hear your thoughts.