I found this Harvard study online and decided I would take the top 5 most important pieces of information from it and share them with you. The observations are listed below. If you want to go to the study itself you can go to it here.
1. Construction of rental units declined for the seventh consecutive year. Despite vacancy rates being lower, construction of new units is falling. Consider the positive net immigration most markets are receiving combined with fewer housing starts and less mortgage worthy tenants and we are going to start seeing a lot of pressure in the rental markets.
2. Over 2 million renter households were added to the rental market from 2004 to 2007. This has caused quite an increase in demand for rentals and rent raises in most markets.
3. The growth in rental demand has been caused in part by tighter credit standards, uncertainty caused by falling home prices and the rising tide of former homeowners who have lost their homes to foreclosure.
4. Nationally weighted real rents rose for the second year in a row. INCOME IS UP! I have personally predicted that this trend will continue for the next 5 to 7 years barring a major recession.
5. Apartment complexes purchased for condo conversions took out over 300,000 rental units from the rental market in 2005 and 2006 alone helping to heighten a demand for rentals.
Overall the report predicts strong growth in the number of rental households and the rental market for the next several years. This is a great time to purchase rental properties with prices falling, rents rising and seller financing becoming more abundant than ever.
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This is fantastic news about rental properties. Why do you think construction of new rental properties is down? We’ve got a 33 unit mixed-use project going on right now and we’re considering which route to go; build them as apartments or condos. One reason to build them as condos is obviously that they’re much more valuable than apartments (which is the biggest reason so many apartments get converted). In fact, apartments, particularly those in areas where the rent isn’t very high, seem to be so much less valuable than condos that I’m having a hard time “making the numbers work” for apartments. The construction costs end up being 65-75% of the future value, which leaves little to no room for profit. Maybe this is why no one wants to build new apartments?