New Study Details Shifts in Rented vs. Owned Housing Stock

Real Estate In-Depth | February 2017

WASHINGTON—The Research Institute for Housing America has released a new study examining the shift of existing housing stock between owner-occupied and rental over time. The study found that between 2000 and 2014, roughly 6.5% of homes built prior to 2000 and 10.3% of homes built in the 1990s, shifted from owner-occupied to rental status.

The study was authored by Stuart S. Rosenthal, Maxwell Advisory Board Professor of Economics at Syracuse University.

“Homes transition quite frequently, with rising prices shifting rental units into the owner-occupied sector and falling prices having the opposite effect,” said Rosenthal. “In fact, over a decade, roughly 2% of the housing stock moves from owner to rental occupancy.”

“A striking feature of the last housing crisis was the dramatic shift of owner-occupied homes into the rental sector. This paper looks back historically to help understand how common such shifts have been and finds that the factors affecting the rate of change are quite similar over time,” said Lynn Fisher, executive director of RIHA and the Mortgage Bankers Association’s vice president of research and economics. “Also it’s important to understand the dynamics of the existing housing stock, because they help explain how the market provides affordable housing, and how it adjusts in the face of changes in both supply and demand. This is especially true today, when new homes are adding such a small fraction to the existing home stock.”

The study additionally revealed that housing stock is more likely to move from owner-occupied to renter-occupied when the current occupant of a home is under water. In fact, the likelihood that a particular house transitions from owner-occupied to renter-occupied is 1% to 2% higher for homes slightly underwater, and six to eight percentage points higher for homes that are deep underwater (i.e., those that have a combined loan-to-value ratio of 120% or greater).

Finally, the study suggested that the large volume of homes that transitioned from owner-occupied to renter-occupied since the crisis may act as a buffer stock of potential future owner-occupied housing, delaying recovery of new construction until a sufficient number of these now-rented homes have been reabsorbed back into owner-occupancy status.

“This may help to explain why new home construction in 2016 remains far below previous levels even though home prices at the national level have regained their 2006 peak,” Rosenthal concluded, noting that additional research is necessary.

The study examined these shifts using 11 years of data from the 2000-2014 Census and American Community Surveys and the 1985-2013 American Housing Survey panel.