A new report from the Mortgage Bankers Association’s Research Institute for Housing America found that a sharp downturn in homeowner growth over the last decade suggests that about 6 million would-be homebuyers have left the housing market or switched to renting. That influx into the rental market resulted in surging rents, with rental affordability problems hitting record highs in 2010 and 2012, the MBA reported.
“Demand for rental housing has greatly outstripped supply, rapidly pushing vacancies down and rents up even as incomes fell. The supply is still trying to catch up with the demand,” said Lynn Fisher, RIHA's executive director and MBA's vice president for research and economics. “In the middle of the last decade, right as the millennials were anticipated to begin forming their own households and increase demand for rental housing, the supply side of the market stalled due to the turmoil in credit markets. At the same time, homeowners diverted from ownership piled into the rental market. The single family rental sector certainly grew, but was only able to accommodate some of the increase.”
Diverted homeowners created a demand for 6 million rental units in the last decade – but that’s not even counting new household formation among millennials. New production in the rental market just wasn’t able to keep up, the report found.
“The most visible indicator of the rental housing crisis is the record-high affordability problem created by rising rents while renters' incomes have declined,” the study stated. “Yet the evidence presented in this report suggests the root of the problem is that many more renters have been added than was expected according to the trends before 2006. Growth in renters came from the arrival in adulthood of the large millennial generation, but an even larger source of growth came from would-be homeowners who were diverted into renting.”
There’s an affordability crisis in rental housing right now, driven by a shift to a rental market during the Great Recession and millennial household formation.