Barbara Kiviat raises an interesting question: who is going to rent out all those houses which got bought by people who never should have been homeowners in the first place?
According to government data, 89% of single-family detached houses are owner-occupied. Meanwhile, 83% of apartments are rented. There is a certain logic to this. An apartment building provides an economy of scale for a landlord that a suburban housing development doesn’t.
To a certain extent, the necessary decrease in homeownership that the US has to see going forwards is going to be driven by urbanization. But that 89% figure is going to have to come down too, especially in areas like Las Vegas and Phoenix which saw a massive number of houses built to satisfy demand from subprime borrowers. So, who will the new landlords be, as we go from a country where 11% of detached houses are rented to one where that number is significantly higher?
They won’t be individuals, I don’t think. There’s something very eggs-in-one-basket about buying a big suburban home just to rent it out: a single bad tenant can devastate you, financially. But at the same time, property management companies understandably much prefer to look after big apartment complexes than sprawling suburban subdivisions.
In an era of very low interest rates, the relatively high rental yields on houses would be quite attractive to investors, I think, if they could somehow be turned into tradable securities. But the costs of buying and managing all those properties would surely be so substantial that they would take a substantial bite out of headline rental yields.
So who will end up renting out America’s suburban homes? I haven’t got a clue, myself, but I suspect it’s going to be a growing business in the years to come.