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Real Estate Experts Differ On Rental Permanency
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More and more people are choosing to rent these days instead of taking the plunge and buying a house. And at least some of that can be attributed to the deflated housing bubble and the ensuing credit crunch. WOSU reports experts disagree on whether the increase in renting is permanent.
Ask anyone on the street what the phrase “the American dream” means and you’ll likely hear: “homeownership.”
But some industry experts predict the American dream as we know it will evolve as more people elect to rent rather than buy.
We’ll come back to that theory in a moment. But first, let’s take a look at the current rental market.
Columbus was named one of the best cities for renters last August by The Urban Land Institute. It ranked the city number four on its top 10 list which compared vacancy rates and rental prices.
But Rob Vogt, a partner with the Columbus real estate research firm Vogt Santer Insights, said it’s going to be tough for renters to find everything they want, especially if it involves lots of amenities and upgrades.
“We have this huge supply of properties that have just aged and have not been renovated,” he said.
The vacancy rate for apartments in downtown Columbus – the chic hot spot for young professionals and retiring Baby Boomers – is less than two percent.
“Which is just almost unheard of at this point,” he said.
But in the outlying neighborhoods, like the southeast side, where there are older, cheaper apartments, the vacancy rate is closer to eight percent.
Vogt attributes some of the increase in rental demand to the unstable housing market.
“The reluctance of younger adults in their 20s, the Generation Y as they’re called, reluctance to buy a new house. I think knowing that there’s the potential that the house they buy this year might actually be worth less than what they paid for it. They’re tending to want to stay in an apartment for a longer time period,” Vogt said.
I mean, let’s be honest, the housing market has been a total mess since late 2007. The past few years you could hardly drive through a neighborhood without seeing a foreclosure notice tacked to at least one front door. And “for sale” signs seemed to come down a lot slower.
As a result the house rental market has grown.
Sue Lusk-Gleich has been a realtor for nearly 40 years. She says she started noticing an uptick in requests for single family rental homes shortly after the housing collapse.
“By late 2008, early 2009 we’re starting to see more rentals in the marketplace. Either the home wouldn’t sale or the owner’s choosing to keep it and wait the market out and he’ll just rent it for the mean time,” she said.
And people who experienced foreclosure, many times, are forced to rent because their credit rating took a big hit.
“Yeah, that happens a lot. It is embarrassing for the person who has found themselves in the situation…but they do not want to leave their communities where they worship, where they shop, where they recreate. They would like to stay there,” Lusk-Gleich said.
This is where the evolution of the so-called “American dream” comes back into play. At the height of the housing bubble, homeownership rates were nearly 70 percent. But Ohio State finance professor Zahi Ben-David expects the homeownership rate to fall below two-thirds.
Ben-David said owning a house does not necessarily have to be the “American dream.”
“In many parts of the world homeownership rates are much lower than the U.S., and people are secure and have you know financial wealth. Owning the home is not a necessity…actually your financial flexibility is much higher if you’re not owning a home,” Ben-David said.
Ben-David expects demand for single family rental homes to continue to increase during the next three to five years. And he predicts developers eventually will create rental home communities.
“Think about it this way if you own a house and you’re underwater and you need to find a job, and there isn’t any job around. You cannot really move from your home to relocate and go to find another employment elsewhere because you’re stuck in your home, you’re underwater. If you were renting, it’s not a big issue,” he said.
But Lusk-Gleich doesn’t buy that. The realtor agrees not everyone should or can be a homeowner. But she does not see a time when America will be a nation of renters.
“There’s pride in ownership. It builds communities. It builds families, and I don’t think we’ll ever get away from that,” she said.
Either way, Vogt said Columbus is in the best rental condition he has seen in decades. And it’s good for landlords, who Vogt expects to increase rent in the city by as much as four percent this year.