Apr 30, 2008
CHICAGO (MarketWatch) — The rise in foreclosures isn’t just affecting homeowners, it’s also putting pressure on renters, according to a report released Wednesday by the Joint Center for Housing Studies at Harvard University.
For one, the uptick in foreclosures is prompting more households to compete for low-cost rentals. Also significant is the number of renters who face sudden eviction when properties they’re living in are foreclosed on, the report found.
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“Today, investor-owned one- to four-family rental properties account for nearly 20% of all foreclosures,” said Nicolas P. Retsinas, director of the Joint Center for Housing Studies, in a news release. “Moreover, because many of the high-risk home-purchase and home-refinance loans now in default are concentrated in low-income and minority communities, the fallout from foreclosures is hitting the same neighborhoods where many of the nation’s most economically vulnerable renters live.”
The number of renter households rose by nearly one million last year, which is more than four times the pace of renter growth between 2003 and 2006, according to the center’s report, “America’s Rental Housing: The Key to a Balanced National Policy.” The U.S. median monthly gross rent reached a record high of $775 last year.
Plus, the turmoil in the credit markets has raised the cost of financing rental-housing construction and preservation, causing completions of multifamily units to fall to 169,000 — two-thirds of the number seen in 2002, according to the report.
Those involved with the study stressed that renters should not be forgotten as housing takes center stage on Capitol Hill.
“A balanced national housing policy should focus renewed energy on preserving the stock of subsidized rental housing, limiting losses of privately owned, low-cost units and eliminating land-use restrictions and other barriers that needlessly increase the cost of producing homes for sale as well as for rent,” Retsinas said.
The current conditions provide an opportunity to transform the inventory of foreclosed and vacant properties into affordable rental housing, he added. In some parts of the country, foreclosure problems aren’t new: Serious mortgage delinquencies and foreclosures have been on the rise in Ohio, Michigan and Indiana for the past decade, according to the report.
The study shows that demand for affordable rental housing is increasing while the supply of low-cost units is declining, said Jonathan Fanton, president of the MacArthur Foundation, which helped in funding the report.
“The debate on national housing policy must not exclude the more than 35 million renter households. We clearly need policies that honor the role of rental housing as well as homeownership,” Fanton said in a news release.
The study also found:
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With an abundance of mortgage capital available during the housing boom years, there was a substantial rise in high-risk lending to absentee owners of one- to four-unit rental properties. In 2007, almost one in five foreclosure starts were on loans made to nonresident owners.
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Foreclosures are also adding to the number of units that are held off the market, in part because of the long foreclosure disposition process and also because some who are buying the foreclosed properties are waiting for conditions to improve before putting the units back on the market.
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While the weak home-buying market is adding to the supply of higher-priced rentals — as owners rent out their vacant condos and homes — many renters don’t have the income required to seize these opportunities.
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In 2006, 42.6% of all working families didn’t earn enough to afford an appropriately sized housing unit. Nearly half of all renters paid more than 30% of their incomes for housing in 2006 and a quarter spent more than 50%.
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The minority share of renter households increased from 37% in 1995 to 43% in 2005, and Hispanic renters accounted for nearly half of the gain.
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Newly built apartments in buildings with five or more units had a median asking rent of $1,057 in 2006, a record high. The median gross rent for all units that year was $766. Only 20,000 new, unfurnished apartments renting for less than $750 were completed in 2006, even though these units were most in demand.
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Condo conversions rose from a few thousand in 2003 to 235,000 in 2005. Only 60,000 units were converted from rentals to condos in 2006. Virtually no conversions were completed in 2007.
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From 1995 to 2005, two rental units were removed from the inventory for every three units built. The losses to inventory were the highest in the Northeast; there, two rental units were lost for every one built.
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