April 19, 2018

Rental Reconversions Give Remodeling a Boost

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Rental Reconversions Give Remodeling a Boost

A large number of homes have been converted to rental units in recent years. Most of these homes had been sold as a foreclosure or in a short sale. But many of these homes will soon filter back into the owner-occupied housing stock, which some experts say could be one answer to alleviating inventory shortages. It also could propel remodeling activity.

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Researchers from Harvard University’s Joint Center for Housing Studies recently took a look at the process of reconverting these rental units back into the owner-occupied housing stock. To evaluate, they looked at owner-occupied homes in 1995 that were tracked over 20 years from the American Housing Survey. Nearly a quarter of the homes in the 1995 group were converted to a rental at least once in that period.

“The pattern of home improvement spending on converted homes is particularly interesting,” notes JCHS researchers on their Housing Perspectives blog. “For homes that were converted to rentals and then converted back to home ownership, spending on home improvement projects was over 20 percent below average prior to being converted to a rental unit, and almost 20 percent above average after that same rental unit was converted back to home ownership.”

Some owners may have been “underinvesting,” knowing that the home would be converted to a rental. After the reconversion to owner-occupied status, higher spending may be needed to fix it up after the renting period or the new owner may want upgrades.

About 4 million more rental units exist today than in 2010. “As many of these rental units return to the owner-occupied stock, we’ll see a boost in home improvement spending,” JCHS notes.

On average, nearly $1,000 more is spent per year on home improvements for a home converted from renting to owning compared to a home converted from owning to renting.

“For every million rentals converted back to home ownership, therefore, there is expected to be almost a billion dollars more spent each year on home improvement activity,” JCHS notes.

Source: “Home Conversions – and Reconversions – Expected to Generate More Remodeling Activity,” JCHS’ Housing Perspectives Blog (March 24, 2016)