Flood of Rentals in the Market

Goldman Sachs published an interesting research report addressing a trend of for sale homes being converted into rental units, as a result of a softening in the buyers market. Seems relatively intuitive right? The demand for owner-occupied housing has gone down and this creative method allows sellers to weather the market conditions. Goldman said that over a million units have swung from the owner-occupied market to the rental market over the last two years. This shift has been driven by units switching markets rather than by a change in the mix of new units constructed, since there hasn't been an increase in new construction of rental units. So, has this increase in the supply of rental housing caused low rental inflation? While demand for rental housing has increased, supply has increased faster. This trend would suggest that these two market forces would result in rental prices dropping with an excess of vacant units in the market. Goldman also points out that the shift of houses toward rental uses also points to another problem for the real estate market: a large amount of "shadow" housing supply that could come back into the market at signs of improvement. Signs of price stabilization or general improvements to the economy would be greeted by owners as an opportunity to bring homes back onto the for sale market. Also worth mentioning, over the past two years there have been sharp increases in the number of homes either "held off the market for other reasons" or "seasonally vacant." So what does this all mean? We are starting the 3rd quarter of the year in what can be considered as a "renters market." Landlords will need to differentiate their properties from this seasonal turn of one million units with exceptional services. Prospective renters will feel a sense of confidence choosing a rental unit from a landlord that offers additional perks like online access to their accounts and the ability to communicate maintenance issues through a self-service Portal. More importantly, leasing your vacancies in this competitive landlscape means your business will need a web presence where available rentals can be highlighted. Bottom line: In order to compete for new tenants or ensure your existing tenants to move out, your business needs to adapt. These are not trends to be ignored!