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Boost in potential for rental properties in the US

Two recent surveys related to US property point to a market where homeownership is falling steadily in favour of rental, particularly among the first-home buyers. While the number of Americans who own their own home is at its lowest quarterly level since 1993, those who rent are at their highest level for 20 years.


Low owner market

The State of the Nation’s Housing 2015 report released earlier this summer by the Joint Centre for Housing Studies (JCHS) at Harvard University looks in depth at tendencies in both homeownership and rentals within the US. The study reports that homeownership stood at 64.5 per cent last year and fell still further in the first quarter of this year to 63.7 per cent. This is the lowest for over two decades and moreover, shows all signs of continuing to fall.


The level of homeownership varies greatly depending on the age group. While the so-called baby-boomer generation (those born between 1946 and 1964) show sustained levels of ownership, also found among Americans over 65, levels at the lower end are falling fast. Researchers find that homeownership among those aged 35 to 44 is at its lowest since the 1960s.


High rental market

The falling trend in purchasing property has had a direct effect on the US rental market. The report states that demand for rental properties has been exceptionally strong over the last five years “with the 2010s on pace to be the strongest decade for renter growth in history”. 35.5 per cent of Americans now rent a property, the highest level for 20 years with around 770,000 new households renting every year since 2004.


Strong demand has led to a surge in rental rates, which went up by an average of 3.2 per cent in 2014, although increases were considerably in some parts of the country. For example, rates for rental properties in Houston rose by 4.2 per cent in June alone. Vacancy levels meanwhile are rock bottom. According to JCHS, they fell to 7.6 per cent last year, the lowest in two decades with some parts of the country experiencing even shorter supply. The report finds that the 20 hottest rental markets in 2014 were all in the west and south of the US.


Huge millennial demand

In separate research, the US property portal Zillow examined homeownership among the millennials (those currently aged between 18 and 34) and found that more and more are delaying the purchase of their first home in favour of renting. Specifically, this generation now rents for an average of six years before buying their own home. In the 1970s, the same age group took just 2.6 years to become homeowners.


Zillow pinpoints several reasons for this increased delay in buying a property. Lack of funds is a major contributor, a factor that is likely to become more significant as US property prices rise. Job instability is another reason since relatively few millennials have the luxury of stable employment that allows them to stay long enough in the one location to contemplate homeownership. And a change in social trends also influences this generation who get married and start a family much later than previous generations. “Millennials are still very interested in buying house, but they’re delaying that decision,” said Zillow Chief Economist Svenja Gudell.


For their part, JCHS concludes that “the outlook for rental housing is strong”, particularly among millennials. According to their report, more than 20 million new households made up of millennials are due to be formed over the next ten years “and most of these households will be renters”. This research echoes findings by RealtyTrac earlier this year, which described investment in US buy-to-let property as “a brilliant strategy” as the market moves away from homeownership.


Source: JCHS, Zillow

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