"Homeownership is highly valued, and it ought to be, but it is important to have a strong rental part of the market because we have a diverse population, and people cannot become homeowners unless they have affordable rental property," says Barbara Lipman, research director at the center.
But during the past three years, about 325,000 apartments were converted into condos for sale. And annual construction of non-subsidized apartments fell by half from 1997 to 2006 as developers switched to building condos.
Over the next five years, the demand for apartments is expected to swell to 430,000 units a year because of job growth, immigration and children of baby boomers moving away from home. That projection exceeds the expected construction of 250,000 new apartment and condo units a year, according to Marcus & Millichap.
Bill Donges, CEO of The Lane Co. in Atlanta, is among the developers who have shifted back to rental apartments. It's a good time, he says, to be a landlord.
"Occupancy has gone up several points, and concessions have burned off. The rental market is again looking good now and for the long term," Donges says.
Part of the reason, Donges agrees, is that people who are losing homes in foreclosure are signing apartment leases.
It's too early to say how many homeowners will turn into tenants in the coming months. Nearly 2 million Americans were behind on their mortgages at the end of March, the most recent period for which figures are available. And that number is expected to rise through the first half of next year as more homeowners with adjustable-rate mortgages see their payments reset higher, beyond their ability to pay.
Interest-only mortgages a factor
Also at risk: Millions of homeowners who aren't building equity in their homes because their mortgages allow them temporarily to pay only interest, not principal, at a time when home values are falling.
Tom Beaton, a vice president at Dolben, based in Burlington, Mass., oversees 8,500 apartment units in New England and the Mid-Atlantic states. At each of his properties, Beaton says, he's seeing three or four applicants a month who lost their homes in foreclosure.
"It's just starting to have an impact," Beaton says. But "we feel it could have a bigger impact going forward."
What's more, his turnover rate among existing tenants is down 10%. "We've attributed that to fewer people purchasing homes," he says.
With occupancy rates in his apartments around 95%, the increase in renters means "there could be the potential for an increase in rents or a reduction in concessions."