Rise of the Rentals

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Th e M Rep o RT | 15 cover story A fter owning five homes over a period of 37 years and managing repairs and maintenance on all of them, Charlotte White of Fort Worth, Texas, was ready for a change. The children and grandson she had raised were gone and her mother, whom she had cared for, had recently passed. The retired juvenile probation officer felt that now was the time to sell her 3,500-square-foot home and transition to a less- demanding lifestyle. White's story isn't uncommon. Many people who could buy a home are deciding that renting is the best option, freeing them from the expense and responsibilities of homeownership. In addition, oth- ers decide to rent as jobs spring up and disappear across the country, enabling them to relocate, if neces- sary. Americans are demonstrating a stronger inclination to follow the money—even if it means never putting down roots in one place. Statistics seem to verify the growing trend in renting a place to live. According to the Department of Commerce's Census Bureau, national rental vacancy rates in the fourth quarter of 2013 were 8.2 percent, 0.5 percentage points lower than the rate in the fourth quarter of 2012 and 0.1 percentage point lower than the rate in the third quarter of 2013. Renters Warehouse, a national property management com- pany, reports that since the 2008 housing downturn, more than 2 million tenants have been added to the rental market. This has resulted in national rentalvacancy rates being at their lowest level in more than a decade. In addition, studies show that renting is going to continue to increase for many years. The Bipartisan Policy Center (BPC) es- timates that 5 million to 6 million new renter households will form over the next 10 years. Their study shows that single-family homes have been the fastest-growing seg- ment of rental stock since 2005. As the only Washington, D.C.- based think tank that actively promotes bipartisanship, BPC works to address key challenges facing the nation. This organi- zation was formed in 2007 by former Senate majority leaders Howard Baker, Tom Daschle, Bob Dole, and George Mitchell. Studies conducted by BPC show that key groups driving the rising rental demand include (1) baby boomers who want to downsize and reduce home maintenance responsibilities and expenses, (2) "echo boomers," born in the 1980s and 1990s, who are beginning to move out on their own, (3) post-foreclosure former homeowners who prefer to rent single-family homes and need time to rebuild their credit, and (4) immigrants providing a boost to rentals in several major cities including New York, New York; Los Angeles, California; Miami, Florida; and Houston, Texas. Living the Resort Life with Few Responsibilities R emembering the cost of maintenance required for homeownership, when she decided to downsize, White decided she no longer wanted the expense and upkeep of even a smaller home. She is elated that the total cost of utilities on her new two-bedroom, two-bath apartment with attached garage is only a small percentage of what she previously paid. Now she enjoys a more re- laxed life in her new apartment community of more than 700 residents of various ages includ- ing students from nearby Texas Christian University to people who are retired. The complex has many parties and events at which White said she has met some great people and made some new friends. "I love this community," she said. "It's like living in a resort, and I really like not having the expense and responsibility for the upkeep of a house. I don't do anything about repairs now. The mainte- nance people even come in and change the light bulbs." She added that owning a home is not such a great investment anymore. "I certainly didn't make any money on the sale of my last home." Uncertainty Has Become a Way of Life W ith employment being so uncertain, being able to relocate quickly is an advantage. There may be a need to move to another area to find work, and getting out of a lease is a lot easier than selling a home. While rents in some areas are not cheap, living in a rental property is generally less expen- sive than living in a home. Many people are living on less income and therefore are not able to pay for home repairs, maintenance, and taxes, so downsizing and liv- ing on less makes sense. In addi- tion, although still working, many people are not earning enough to maintain previous lifestyles. In the next three categories of the BPC study, many of the echo boomers, former homeowners, and immigrants are living with a lot of uncertainty. Some are doing temporary work, others are work- ing for half of what they used to earn, and still others are working two or three jobs to take care of themselves and their families. All know that they can be laid off at any time and then will have to look for another job. "It's not difficult to understand why so many people are deciding to rent when you take a look at the statistics," explained economist Dr. Ravi Batra, professor at Southern Methodist University in Dallas and author of several books on economic trends. "Employment rates are below what they were in 2007," he said. "Very few jobs are being created, and they are at low salaries. Consequently, family in- come is $5,000 below what it was in 2007, and the recession has not really ended. This is why people are renting." He continued by saying that good jobs are hard to find, and temporary and low-paying jobs are mostly what is available. "There is a lot of uncertainty," he said. "Buying a home is a long-term commitment, and that is why people are not committing themselves." Another factor is that although interest rates are low, lending requirements are more stringent. From an economist's point of view, Batra said, "Wages are the main source of consumer demand, and productivity is the main source of supply. If supply is more than demand, then there is overproduction. That's what happens when wages remain flat while productivity and debt rise together and wealth becomes more and more concentrated." Batra explains that when productivity rises, more goods are produced, but since wages are flat, consumers have no extra money to buy the extra goods. Consequently, when sales shrink, the whole downward spiral begins, creating more unemployment. Until this cycle is corrected, Batra thinks that people will continue to opt for renting a place to live instead of buying one. Changing Lifestyles= Changing Attitudes I n previous generations, families lived in the same home for long periods of time— perhaps 40 or 50 years. The family breadwinner, usually the husband, worked at the same job until he retired. People put down roots, children made friendships that sometimes last- ed a lifetime. In the society of

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