From Owner-Occupancy To Rentals And Back Again

March 29, 2016

The best adventures don’t end at the destination; there is always a return trip. Just look at Bilbo Baggins in The Hobbit (a book otherwise known by the quite literal title of “There and Back again) or Dorothy in The Wizard of Oz. The return trip, while typically not as thrilling, always follows the initial adventure. It stands to reason, then, that the housing market would follow this same pattern as it begins its own return trip.

The housing bust led to many owner-occupied homes being converted to rental units. But now that homeownership is beginning to show signs of picking up again, these rentals are beginning a conversion back to owner-occupancy, and this process is expected to generate an increase in remodeling activity, according to the Harvard Joint Center for Housing Studies.

Homes that are converted to rentals are typically less desirable, being older, more likely to be located in central cities, and having a lower value. As a reflection of the lower home value, spending on home improvement projects was also lower on average. Before owner-occupied homes were converted to rentals, home improvement spending was more than 20 percent below the average for all homes. Interestingly enough, however, on the return journey back to owner-occupancy, home improvement spending was almost 20 percent above average.

Currently, there are over eight million more rental units than there were in 2005, but many of these units are set to return to the owner-occupied stock. Based on the above statistic regarding home improvement spending for these projects, it makes sense to expect a boost in home improvement spending. The Joint Center for Housing Studies estimates that for every one million rentals that are converted back to homeownership, there is expected to be almost $1 billion extra spent each year on home improvement activity.

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