Why Home Prices Keep Rising & More People Keep Renting

home prices keep rising

One reason that home prices keep rising can be found in a recent report by the Pew Research Center.  The report notes that more households are renting than anytime over the past 50 years.

Over the last 12 years the number of people who own a home has remained basically the same, while the number of people who rent where they live increased by over 25%.

Everybody Is Renting

This rise in renters is across all demographic groups:

  • All age groups have seen an increase in rental households, with 65% of people younger than 35 renting where they live
  • White, black, and Hispanic ethnic groups have all seen a rise in renters over the last 10 years
  • People of all education levels are renting more, with households holding a bachelor’s degree or higher having the largest increase in renters

The rise in home renters is a pattern that is going to continue for quite some time.  It is also a reason why the costs of condos and single family home prices keep rising.

Why Do Home Prices Keep Rising?

Since 2012 private equity has moved into the home rental market in force.  Large REITs and smaller crowdfunding groups now buy homes in quantity and rent to the people that were foreclosed on and forced into bankruptcy during the last housing crisis.  These mega-home rental organizations continue to buy both new and existing home inventory.

The shortage of skilled labor and zoning laws that constrain the supply of new construction are another reason why home prices will continue to rise.

In 2011 only 13% of the members of the National Association of Home Builders cited labor costs as a concern.  Now 82% of home builders say rising labor costs are their biggest concern.  Both immigration policy and the increase in natural disasters such as Hurricane Harvey in Houston cause labor shortages in the construction sector.

Lumber futures have increased by more than 57% since President Trump imposed tariffs on Canadian lumber.  While that’s good for people in the lumber business, it is a disaster for single- and multi-family home builders who use lumber for framing.

In Summary

An increasing amount of new home construction and existing inventory is being purchased in bulk and turned into rental property.

At the same time the supply of new housing is limited by rising labor and materials costs and well-intentioned NIMBY governmental zoning policies that cause a shortage of buildable land.