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April 23, 2014

Single-Family Rental Boom to Take Toll on Neighborhoods?

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Single-Family Rental Boom to Take Toll on Neighborhoods?

Many former home owners displaced by foreclosure are being left with no other option but to rent. They’re increasingly turning to renting single-family homes, which is the fastest growing segment of the rental market from 2005 to 2010, according to Fannie Mae research.

Three million former home owners from the foreclosure crisis will likely rent single-family homes between 2010 and 2015, according to estimates by John Burns Real Estate Consulting. 

"In the next five to 10 years, you'll see tens of billions, if not hundreds of billions, of dollars of private equity" pouring into the single-family rental business, Justin Chang, principal of investment firm Colony Capital, told USA Today.

But some home owners are concerned about what the surge in renters will bring to their neighborhoods. Some home owners say that renters don’t tend to take care of the yards or home maintenance as well as home owners, they have more parked cars lining the streets, and they are more disconnected from their neighborhoods. Some home owners fear that more rentals coming into their neighborhoods will hurt home values too. 

They may have reason for their concern: A study completed 10 years ago showed that a 10 percent increase in a neighborhood’s home ownership rate led to about a 3.6 percent increase to home values, according to a study by Edward Coulson, a Penn State University economist. Coulson’s preliminary data on newer research suggests that an increase in rentals to a neighborhood may slightly decrease home values.  

Some cities have taken steps to limit the number of the rentals. West St. Paul, Minn., and some other Minnesota communities, for example, have adopted laws to limit single-family home rentals to 10 percent of homes on a neighborhood block. 

However, some critics argue that investor-owned rentals could help give some neighborhoods a much-needed lift. Some renters may do a better job at upkeeping homes than a distressed home owner, let alone a home that just sits vacant, they argue. 

Source: “Home Rentals: The New American Dream?” USA Today (June 6, 2012)

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