Study: More Owner-Occupied Homes Becoming Rentals

February 14, 2017

A homeowner’s equity position is one of the central issues that prompts owners to take their property from owner-occupied to rental status, according to a new study from the Mortgage Bankers Association’s Research Institute for Housing America. About 2 percent of the housing stock makes such a transition over a decade.

The study shows that 6.5 percent of homes built before 2000 and 10.3 percent of homes built in the 1990s went from owner-occupied to rental status.

“Underwater homes are notably more likely to transition into the rental sector, possibly because of reduced incentives to maintain the home and related decay,” notes Stuart Rosenthal, a Syracuse University professor, who authored the study.

Owner-occupied homes with a combined loan-to-value ratio between 100 percent and 120 percent are between 1 and 2 percentage points more likely to become rentals, Rosenthal notes. Homes with a CLTV above 120 percent, on the other hand, are between 6 and 8 percentage points more likely to make this transition.

However, homes aren’t as likely to transition if the rental market is not vibrant. Also, certain neighborhood or structural attributes – like a waterfront location or being a detached property – also makes it less likely the property will turn from an owner-occupied home to a rental one, the study notes.

The study also found that age-related depreciation makes it more likely that a home will become a rental home. Also, higher home prices did not likely cause a transition from owner to rental status either.

"For certain types of homes rising house prices encourage transitions into the owner-occupied sector," Rosenthal notes.

Falling home prices, on the other hand, often prompt swings into the rental market. The large increase in homes that went from owner- to renter-occupied in the aftermath of the financial crisis will likely have an affect on new-home construction, Rosenthal says.

"Movement of housing stock back to owner-occupancy status … has the potential to undercut demand for new construction since most home building occurs in the owner-occupied sector," Rosenthal writes. “A large buffer stock of potential owner-occupied homes may now sit in the rental segment of the market."

Source: “Why More Single-Family Homes Are Becoming Rentals,” National Mortgage News (Feb. 7, 2017)