Foreclosure hangover: How the 2008 crisis created a new class of renter
For decades, the single-family house surrounded by a white picket fence has symbolized the American dream of homeownership.
But these days those picture-perfect homes increasingly are occupied by renters, not owners — a new trend with roots in the foreclosure crisis 10 years earlier, according to a recent study by UC Berkeley's Terner Center for Housing Innovation.
Tenants renting single-family homes make up the fastest growing segment of the U.S. housing market, but they are vastly overlooked, unable to benefit from some protections enjoyed by tenants living in apartments, the Terner Center researchers found. It's an issue in the Bay Area — where high home prices and a shortage of houses for sale have locked many renters out of ownership.
"We did this study really to understand the rise of single-family rentals from the perspective of the tenants themselves," said Carolina Reid, faculty research adviser for the Terner Center, and one of the report's lead authors.
The story starts a decade earlier, when the housing market crashed and a wave of foreclosures swept the country. Suburban communities in California and other states that had been building rapidly during the boom were left with a surplus of vacant single-family homes.
Meanwhile, families who once owned their homes but lost them to foreclosure were forced into renting — and thanks to ruined credit and high prices, many still haven't been able to buy again. As a result, more than 3.8 million new households became renters of single-family homes between 2006 and 2015 — an increase of 34% — and by 2015, renters lived in nearly one in five single-family homes, according to the Terner Center report.
Zillow senior economist Aaron Terrazas has a different take on why single-family home rentals are up in the Bay Area. In 2016, 21% of single-family homes in the San Francisco metro area, which includes the East Bay, were rentals, compared to 17% in 2000, according to Zillow data. In the San Jose metro area, 20% were rentals in 2016, compared with 18% in 2000.
In the Bay Area, which wasn't as devastated by the foreclosure crisis as other regions, the spike in single-family home rentals is partly a result of rising home prices, Terrazas said. People who want to downsize or move are holding onto their homes and renting them instead of selling, hoping to capture more value, he said. And while it's usually the single-family homes on the low end of the spectrum that wind up as rentals in other regions, in the Bay Area, it's the high-end homes that get rented out.
There are plenty of Bay Area families in the market to rent those properties.
"Young families who can't afford to buy their first home are renting at a point in their life when historically they might have bought," Terrazas said.
A quarter of the 100 largest U.S. cities saw renting, not owning a home, become the new norm over the past decade, according to a RentCafe analysis of U.S. Census data.
Despite the country's booming population of renters living in single-family homes, housing policy has not evolved to support these tenants, the study found. Many renters in single-family homes have incomes that are too high to qualify for housing subsidies, but they still struggle with their housing costs. The researchers suggested a tax credit to help renting families save, and implementing longer-term leases to give renters a heightened sense of security. Furthermore, the federal Fair Housing Act protects apartment-dwelling renters from discrimination, but carves out exemptions for tenants of certain single-family homes owned by "mom-and-pop" landlords, according to the study.
"If single-family rentals are a trend that is here to stay," the researchers wrote, "it is critical to develop a robust policy framework as well as strategies to support this sector in order to ensure that these households have access to high-quality and stable housing."
The majority of renters surveyed said they were happy with their decision to rent, for now, but 80% said they planned to buy a home in five years. The researchers surveyed 190 renters around the country and interviewed 19 anonymously.
Twenty-five percent of renters surveyed had previously owned a single-family home — and of those, more than a quarter lost their home to foreclosure. One who had experienced a foreclosure said she was done with home ownership, saying: "I used to think it was like the American dream, before this crunch came and everything went under...But I'm looking at it now and thinking, maybe that was not, maybe the dream is different."
Though the majority of renters surveyed hoped to buy a home, 91% said financial issues — including poor credit scores, debt and insufficient income -- stood in the way of that dream. More than 25% of the renter households surveyed earned $100,000 a year or more, but multiple people interviewed expressed concern over being forced out of their homes through rent increases or if their landlord decided to sell the property.
"Perhaps the thing that struck me the most," Reid said, "is the sense of financial vulnerability that comes out of these interviews and these surveys."