John Burns says top rental markets about to "explode"
Numerous recent reports claim renting is on the rise, but John Burns Real Estate Consulting believes demand in top markets is about to "explode," with some cities seeing a 25% growth over the next three years.
According to John Burns, there are about 3.4 million units of pent-up demand for rental housing bolstered by young adults who either live at home or are rooming with a friend to save money.
"We expect this demand to materialize over the next few years, with most of the demand entering the apartment market because of the inability to qualify for a home and uncertainty over their employment situation," vice president Leslie Deutch said in commentary Tuesday.
Still, 20-somethings won't be the only driver of rental demand. Unemployment is still high, the consulting firm said, which will motivate even older adults to consider renting as a "safer" option. Deutch anticipates only a 2% growth in jobs by 2012.
Government policy will indirectly send housing traffic to the rental market, Deutch said. For 19 years, the government aggressively promoted homeownership, an effort which "is about to reverse itself," according to Deutch. A previous report from the firm weighed the impact of government policy on the housing market (see graph below).
"We see 2011 as a very uncertain year for housing, primarily because the powers that be in Washington DC continue to influence the dynamics of the industry," Lisa Marquis Jackson, author of the previous report and senior vice president of John Burns, said.
Sequentially, rental rates will rise, occupancy rates will increase, and new construction will start, Deutch said. She expects some coastal cities to witness rental growth of 25% or more. Other major metropolitan areas could see up to 4.5% rental growth by 2015. But not for very long.
According to consensus, Deutch said common sense indicators point to homeownership. For one, she said, rental rates must hit a cap.
"Several of our apartment clients feel that they are already near the limit of what their tenants can afford," Deutch said. "Renters are a clever, creative bunch who won't take huge rent increases easily."
Other reasons Deutch said the apartment sector will eventually contract is because of the long-term affordability of owning a home versus renting, and because it's "not smart to rent forever."
"As rents start to grow, more renters will consider buying," Deutch said. "Most people realize that paying rent all your life is probably not a great retirement decision unless you are a fantastic saver."
Write to Christine Ricciardi.
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