With the Foreclosure Crisis Behind Us, Have We Stopped Adding Single-Family Rentals?

by Shannon Rieger
Research Analyst

A decade of growth in the single-family rental market has fundamentally reshaped the nature of rental housing across the country, with states hard-hit by the foreclosure crisis seeing particularly notable changes, according to Joint Center analyses of data from the American Community Survey (ACS) and other sources. Our review also showed that the stock of single-family rental homes, which grew dramatically between 2006 and 2014, has been roughly stable for the last few years.

According to the ACS data, the nation's stock of single-family rentals grew from 12.2 million units to 16.1 million units in 2016, with virtually all of the growth (99 percent) occurring between 2006 and 2014. This 32 percent increase in the single-family rental stock far outpaced the 11 percent increase in the nation's stock of multifamily rental units, which grew from 26.0 million to 28.9 million between 2006 and 2016.

As a result, single-family homes now represent more than one-third (34 percent) of the rental stock nationwide. Additionally, the growth in single-family rentals has provided an important source of housing for families with children. In fact, single-family homes accommodated 84 percent of the growth in renter households with children between 2006 and 2016.

However, most of these new rental units were not new construction. According to our analysis of data collected by the US Census Bureau, between 2006 and 2016, only 366,000 new attached and detached single-family homes were built as rental units. This, in turn, indicates that about 3.5 million of the single-family rental units added to the stock 2006–2016 were existing structures that had previously been owner-occupied homes.

This trend of converting single-family homes to rentals was unevenly distributed across the country, with the greatest increases occurring in the states with higher than average foreclosure rates, according to JCHS analysis of data from the Mortgage Bankers Association and the ACS (Figure 1). For example, between 2006 and 2016, Nevada's stock of single-family rental units grew by 63 percent—faster than any other state in the country. And the foreclosure start rate in Nevada peaked at 3.8 percent in 2009, the highest rate of any state 2006–2016 and more than double the nation's peak rate of 1.4 percent.

Arizona and Florida also experienced particularly high foreclosure rates and unusually large increases in their stocks of single-family rental units. Arizona's foreclosure start rate peaked at 2.6 percent in 2009, and its single-family rental stock grew by 61 percent between 2006 and 2016. Florida's foreclosure start rate hit a high of 2.8 percent in 2009, and its single-family rentals grew by 50 percent int he decade leading up to 2016. While these data do not tell us exactly how many of these homes completed the foreclosure process and were subsequently converted to rental units, they do suggest that, as many have reported, large numbers of foreclosed homes were bought by investors who converted them to rental units.

Figure 1.

Note: Single-family rentals include detached and attached single-family homes. Stock estimates include renter-occupied units and units that are vacant for-rent. The MBA National Delinquency Survey reports the rate of mortgage loans that are in foreclosure as a percentage of the number of loans serviced during the quarter. The survey sample includes about 85% of the US market for first-lien 1-4-unit mortgages.

Source: JCHS tabulations of US Census Bureau, 2006 and 2016 American Community Surveys, and Mortgage Bankers Association National Delinquency Survey, compiled by Moody's Economy.com

However, since 2014, the foreclosure inventory has largely cleared and few new foreclosures have been filed. Not surprisingly, there was also little growth in the stock of single-family rental units 2014–2016. Illustratively, the number of single-family rentals grew by an average of 483,000 a year between 2006 and 2014, but between 2014 and 2016, the stock grew by only 22,000 units. It remains to be seen if this recent shift is a short-terms pause or if it represents the culmination of the past decade's trend of significant growth in single-family rentals.

Leveraging Resiliency to Promote Equity

by David Luberoff
Deputy Director

Faced with the increased threat of natural disasters, some community-based organizations are trying to link their efforts to better plan for catastrophic events with their existing efforts to address issues like affordable housing and economic development, according to "Bounce Forward, Not Back: Leveraging Resiliency to Promote Equity," a new working paper jointly published by the Joint Center for Housing Studies and NeighborWorks® America. Written by Caroline Lauer, a master in urban planning student at Harvard's Graduate School of Design who was a 2017 Edward M. Gramlich Fellow in Community and Economic Development, the paper draws lessons from the growing literature on resiliency and from two case studies of notable initiatives carried out by organizations in NeighborWorks' national network of independent, nonprofit organizations focused on affordable housing and community development.

A sample RAPIDO home.

The first case study describes work done by the Community Development Corporation Brownsville, which has worked with several other community groups to develop RAPIDO, a holistic approach to disaster recovery that, "aims to quickly and affordably rehouse individuals and families, building social capital within the community, and stimulating the local economy." The key to this effort, Lauer explains, is providing families with, "a simple 480-square-foot [structure] that contains essential facilities," and training a group of "Navigators" who can lead residents through the disaster recovery process. The units, which cost about as much as the temporary manufactured units typically provided to people who have lost their home to natural disaster, "can be built easily at local lumberyards, transported by basic trailers, and assembled on-site in three days by four people." Moreover, unlike the temporary housing, the units are permanent and can later be expanded.

The second case study focuses on NeighborWorks® Umpqua's Southwestern Oregon Food System Collaborative (SWOFSC) Seafood Project, a multi-faceted effort to address the struggles of the region's small-scale fisheries. This effort does so by investing in and fostering local processing facilities and other infrastructure to support local fishermen. At the same time, it also uses marketing and other strategies to increase the local and regional demand for less traditional types of seafood that, because of warming oceans, comprise increasingly large shares of what local fishermen are bringing into port. Moreover, the project leveraged these economic development initiatives to help the region prepare for both slow-moving disasters, such as the effect of climate change on the fish population, and for acute disasters, such as a storms, tsunami, or earthquakes that might reduce or even cut off the region's access to the mainland for an extended period of time.

Although the initiatives are quite different, and while it is too soon to fully gauge their effectiveness, Lauer contends that together they offer three important and timely lessons given the hurricanes that hit Texas and Puerto Rico and the wildfires that devastated parts of California and other western states last year (after she had carried out her research). First, their differing trajectories show that while efforts to link community and economic development initiatives with projects that are focused on resiliency and disaster response can have different starting points and program structures, they can still achieve similar goals. Second, both show that regardless of how they start and are structured, such efforts should focus on creating social and physical connections and structures that can be used to address a variety of pre- and post-disaster conditions, including structural inequality. Finally, she notes, such efforts strengthen a community's ability to respond not only to anticipated problems but to unforeseen challenges and potential disasters.

Supporting Homeowners in a High-Cost, High-Opportunity City

by Christie Peale
Center for NYC
Neighborhoods

New York City is an increasingly expensive place to live, and housing prices are dramatically outpacing incomes. In fact, over the past 25 years, home prices have increased 200 percent while incomes have remained stagnant. Moreover, today, half of the city's renters and 37 percent of its homeowners are considered housing cost burdened.

In his recently released symposium paper on "Expanding Access to Homeownership as a Means of fostering Residential Integration and Inclusion," Christopher Herbert presents a compelling case for making homeownership more affordable and accessible to achieve higher levels of residential integration and inclusion. At the Center for NYC Neighborhoods, a nonprofit that protects and promotes affordable homeownership in New York, we have seen firsthand the essential role homeownership plays as a bulwark against displacement within the context of gentrification and increasing unaffordability. In addition to enthusiastically endorsing Herbert's policy recommendations to promote new homeownership opportunities, we also encourage policymakers to develop approaches that support existing homeowners.

Gentrification, Displacement, and Housing Mobility

Current discussions of housing mobility generally focus on the importance of supporting families who choose to move from racially-segregated, high-poverty neighborhoods to neighborhoods with greater racial integration and economic opportunities. This is, of course, a worthy goal. Yet, the goals of choice, inclusivity, and opportunity also require us to support families who are at risk of being forced to leave neighborhoods due to rising costs. By supporting families who are vulnerable to displacement, we can promote inclusion and ensure that families of all backgrounds and incomes have access to economic opportunity and improved neighborhood conditions.

The Center for NYC Neighborhoods spent 2017 studying what happens to families in one such neighborhood: East New York, in Brooklyn. Home to thousands of black and Hispanic working-class homeowners, East New York has historically been one of New York City's most affordable neighborhoods. Like many communities of color around the country, it continues to be battered by the legacy of the Great Recession and high rates of foreclosure.

But, in recent years, home prices have spiked and the neighborhood has experienced an influx of investment and increasingly affluent residents. Labeled Brooklyn's "last frontier" by real estate investors, the neighborhood's longtime homeowners and tenants face increasing uncertainty.

For our study, we tracked East New York residents who moved out of their homes between 2012 and 2016, focusing on homeowners who were facing foreclosure. We found that homeowners with mortgage distress who stayed within the city tended to become renters, contributing to a saturated rental market in the few remaining affordable neighborhoods. We also found that homeowners who left the city tended to move to places with more affordable housing, but at the cost of access to jobs, higher transportation costs, and reduced economic mobility.

Interventions to Support Existing Homeowners

Our findings demonstrate that the role foreclosure plays in helping to feed the cycle of neighborhood change and displacement, and underline the importance of policies that support and stabilize low- and moderate-income homeowners. We recommend the following:

• Streamline and expand home repair resources: Unaffordable home repairs are one of the biggest challenges for lower-income homeowners, and existing resources are often unable to meet the need.
• Continue to fund homeowner stabilization assistance: Foreclosure prevention services face major cuts in New York, as well as nationally, yet tens of thousands of homeowners continue to struggle to avoid foreclosure. We recommend continuing to support these vital services and developing innovative new programs to promote homeowner stabilization, such as financial empowerment counseling and matched savings accounts.
• Reform policies towards tax- and water-bill-delinquent homeowners: Many lower-income homeowners struggle to afford property tax and water bills. When faced with the prospect of an in rem or tax lien foreclosure, they may feel they have no other choice than to sell their home, which can further stoke the loss of affordable housing. We recommend developing income-based repayment plans and alternative debt servicing models.
• Support homeowner-landlords in order to support tenants: Rental units in owner-occupied homes provide a major source of affordable housing. However, the future of these units is at risk. We recommend developing incentives for homeowners to provide rental units that are affordable for low-income individuals or families leaving homeless shelters, as well as legalizing safe basement apartments and other accessory dwelling units. These reforms would have the joint benefits of stabilizing existing homeowners' finances and creating additional affordable housing opportunities for renters.
• Strengthen local incomes and economic opportunity: We recommend improving access to good jobs through neighborhood-targeted workforce development, job access strategies, and living-wage policies. Tax policy maters, too. For example, many of the homeowners we serve do not earn enough to benefit from the Mortgage Interest Deduction. As Herbert recommends, converting the deduction to a credit would provide direct assistance that is better targeted to lower-income homeowners.

Our ability to protect the working- and middle-class homeowners in neighborhoods like East New York will help decide whether New York City will remain a place of opportunity for all people, or only for real estate investors and the wealthy. Moreover, these efforts could serve as a model for people concerned about similar problems in other cities. Taking these steps requires us to recognize that there is nothing natural about displacement and that solutions exist to support vulnerable homeowners and their tenants.

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This post is a response to the Panel 5 papers that were presented at our A Shared Future symposium in 2017. These papers are available on the JCHS website. 

Home Remodeling Expected to Remain Strong and Steady into 2019

by Abbe Will
Associate Project Director,
Remodeling Futures

The robust pace of spending on home renovations and repairs is expected to stay strong over the coming quarters, according to our latest Leading Indicator of Remodeling Activity (LIRA). The LIRA projects that annual growth in homeowner remodeling expenditure will remain above 7 percent throughout the year and into the first quarter of 2019.

Strengthening employment conditions and rising home values are encouraging homeowners to make greater investments in their homes. Upward trends in retail sales of building materials and the growing number of remodeling permits indicate that homeowners are doing more—and larger—improvement projects.

While the overall outlook is positive, one area of concern is the slowing growth in sales of existing homes, since sales traditionally trigger significant renovation spending by both sellers and buyers. Even with this headwind, annual spending on residential improvements and repairs by homeowners is set to exceed $340 billion by early next year.

For more information about the LIRA, including how it is calculated, visit the JCHS website.

Using a Full Portfolio of Tools (Including Vouchers) to Expand Access to High-Opportunity Communities

by Barbara Sard
Center on Budget
and Policy Priorities

The three papers from the rich and provocative A Shared Future symposium that focused on what it would take for housing subsidies to overcome affordability barriers to inclusion in all neighborhoods provide a multi-faceted and nuanced set of approaches that would expand possibilities for lower-income, non-white families to live in higher-opportunity communities. While these are important approaches that should be part of the policy portfolio, efforts to expand opportunities should also recognize that tenant-based vouchers are, and will likely remain, the primary policy tool for enabling poor and near-poor families to live in higher-opportunity communities.

In his paper, Chris Herbert reminds us that, typically, the housing stock in high-opportunity communities is predominantly owner-occupied. So, as part of a comprehensive portfolio, it’s important to consider strategies to make it possible for low-income (and other) families of color to purchase homes in such neighborhoods, including those where rents are starting to rise. However, even a robust set of tools to overcome downpayment and credit barriers may not be sufficient to make for-sale homes in neighborhoods with good schools and other amenities in many regions within reach of low-income families.

Both Steve Norman and Margery Turner highlight the key role acquisition by committed owners of multifamily rental properties can play, both in keeping rents affordable in “emergent” (i.e., gentrifying) neighborhoods and in making more units available to families with housing vouchers in those and already higher-rent communities. Federal housing policy has neglected such acquisition strategies: grants are rarely available to reduce the amount of debt such purchases will require, and tax credits are restricted to new development or substantial rehabilitation. Like the King County Housing Authority, some other mission-driven organizations, such as the National Housing Trust, have patched together state or local assistance with private market debt (and potentially project-based vouchers) to make such acquisitions feasible. Facilitating loans and grants to purchase rental properties tied to long-term affordability restrictions – including obligations not to discriminate against voucher holders – should be a goal of federal housing policy, including housing finance reform.

While it’s important to include for-sale and multifamily acquisition strategies in a comprehensive strategy portfolio, tenant-based vouchers will likely remain the primary tool for enabling more poor and near-poor families to live in higher-opportunity communities. That’s true, given vouchers’ current scale — more than 2.2 million Housing Choice Vouchers are now in use — and their flexibility to rent virtually any type of decent-quality dwelling at a wide range of price points.

Yet vouchers can do much more to expand housing choice. The implementation of HUD’s new Small Area Fair Market Rent (SAFMR) policy is a promising step, but other federal policy changes are needed to create stronger incentives for housing agencies to promote better locational outcomes. It’s also vital to make more funding available, from public as well as philanthropic sources, to meet agencies’ additional administrative costs of promoting voucher mobility. And federal policy should not only permit but encourage agencies to target vouchers combined with mobility assistance to families with young children living in the most severely distressed neighborhoods.

Such efforts to foster inclusion may cost more, though experience with SAFMRs shows this isn’t always the case. But if we really care about outcomes for families over the long term, we can’t wait until there are sufficient resources to make housing affordable to all before we start paying attention to the types of neighborhoods families live in. The desperation and long-term harm of homelessness and housing insecurity create understandable pressure to spread the limited subsidy resources to help as many families as possible. Yet mounting evidence demonstrates the real long-term harm of growing up in a very poor, violent neighborhood and attending low-performing schools. Affordable housing alone doesn’t improve life chances; where families are able to live must also be a first-order concern, not one that we’ll pay attention to if and when we remedy the shortage of subsidies.  

While housing practitioners work to do the best job possible with the available resources, we must also build the political will to expand investments in housing subsidies, so that more families have the chance to overcome affordability barriers and live in communities of their choice. The Center for Budget and Policy Priorities, along with the National Low Income Housing Coalition and others, has just launched the Opportunity Starts at Home campaign, a long-term effort to achieve this goal.