Crisis Prompted Neighborhood Blending of Owners, Renters

As housing values declined during the receession, many properties were converted into rentals, according to a new report.

The Great Recession helped prompt more blending of renters and buyers within U.S. neighborhoods, especially in places where property values declined the most and where investors bought cheap homes to convert into rentals.

Renters and owners are more separated in some areas more than others, and the neighborhood mixing of renters and owners increased in 70 of the 100 largest U.S. cities between 2000 and 2010, according to a Trulia report released Wednesday. Separate Trulia research shows that most homeowners tend to prefer to surround themselves with other owners, not renters.

For Americans unable to purchase a home or maintain their home during the housing crisis, the amalgamation of owners and renters within an area means they have more neighborhood options to choose from.

“The main reason that there’s been more integration is that many single-family homes in traditionally owner-occupied neighborhoods became rentals. Investors bought up many of those foreclosed homes and rented them out,” says Jed Kolko, Trulia’s chief economist and the report's author. “That’s given people who lost [homes] in foreclosure and had to rent the option of staying in the type of neighborhoods where they used to own a home. It meant that they could keep the kids in the same school district, stay near the same neighborhoods and uproot their lives less.”

Of the 100 largest U.S. metropolitan areas, the top 10 with the most renter-owner integration tend to be in the Sun Belt, and the top four are all in Florida. Generally, more integration occurs in smaller, lower-population density areas. The areas with the least mixing are mostly in the Northeast and Texas, with eight of the top 10 within a three-hour train ride of New York City, the report showed.

Vacation areas like Florida tend to be more mixed in terms of owners and renters in a neighborhood, especially when owned properties are converted into rentals, Kolko says. Larger, older cities tend to have more traditional multiunit apartment buildings close to the city center with owner-occupied homes further out in the suburbs, and “a lot of the dense older cities in the Northeast fit that pattern,” he says.

Less integration doesn’t necessarily correlate directly wish rising home prices, Kolko says, though it may impact homeownership. The rate of homeownership spiked in 2004 as home prices accelerated just before the housing bubble burst, and it’s been steadily declining since, reaching its lowest level since 1995 in the second quarter of this year, according to the Census Bureau.

Home price increases slowed in June, according to the S&P/Case-Shiller Home Price Index reportreleased Tuesday. In fact, for the first time since the beginning 2008, the home prices in all cities measured showed lower annual rates of growth in June compared with the prior month.

“Home prices and rents will both affect when investors decide to sell some of the homes that they’re renting out, and also when some of the people renting out those homes can afford to buy a home,” Kolko says. “If rents flatten out or even start to fall, investors might decide it’s time to start letting go some of those rental units and return them to owner occupancy.”