The rental market has gained strength over the past year, bringing good news to investors. Demand has picked up sharply, vacancy rates have started to retreat, and rents are turning up. With new construction still depressed, markets are likely to continue to tighten. But rising rents, together with ongoing losses of low-cost stock, mean declining affordability for the millions of low-income households that make rental housing thier homes.

 

While the homeowner market remains mired in foreclosures and weak demand, rental market conditions have improved. Indeed, renter household growth has outpaced owner household growth for four consecutive years. From 2006 to 2010, the number of renter households jumped by 692,000 annually on average, to 37 million, while the number of owner households fell on net by 201,000 annually. This is a complete reversal from the preceding decade and a half, when homeowners drove the vast majority of household growth and the number of renters stagnated. Two trends underlie this shift: the rising number of renters who have deferred homebuying, and the rising number of owners who have switched back to renting. More on these trends in the next posting.