Owner Occupied Housing Case Study

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Rental Housing v. Owner-Occupied Housing
In further understanding the differences between the trends in rental v. owner-occupied housing, we can apply economic theory. First and foremost, is supply and demand theory. This is the most basic of economic principles. It explains how prices are set, how and when the market is at equilibrium, and human behavior in the context of a free market economy. (The Law of Supply and Demand, n.d.) The greater the demand for a good, the higher its price. This is what we saw with the build-up of the housing bubble.
Within supply and demand theory there are complementary and substitute goods. Complementary goods are related goods used in conjunction with each other, such as hot dogs and hot dog buns or
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If the price for one good increases, consumers will turn to a different good to satisfy their needs (Substitute Goods, n.d.), thereby decreasing demand for the original good and increasing the demand for the substitute good.
This is what we see with housing; rental and owner-occupied housing serve as substitutes for each other. Returning to the rent/price ratio, it trended back down in 2013 and remained flat going into 2014. A downward trend indicates that the economy or market – depending how one is reviewing the data, either for the economy as a whole or in a specific geographic market – is not fully supportive of home ownership and that there is more value to renting. Conversely, an upward trend supports home ownership over renting.
The trend for home ownership is down. Millennials, those born between 1980 and the early 2000s, are waiting longer before buying their first home. (Rent Jungle, 2015) For them, purchasing a home represents a much higher cost relative to income than it did in years past. To illustrate this point, in the 1970s, the cost of a house represented about 1.7 percent of annual income; today that figure is at almost 3 percent. (Rent Jungle, 2016) Single-family home prices are continuing to trend upward (Hanley Wood Data Studio, 2016), making home ownership an unaffordable option for
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They invest in property improvements, whether single-family homes, multi-family dwellings, or large apartment complexes. (Goldstein, 2015) With more Americans renting than they have in decades, demand is at an historic high. Low vacancy rates and supply and demand are leading to increased rental prices. In fact, the cost of renting has grown significantly in the past eight years. (For Rental Housing, It’s the Best and Worst of Times, 2016)
With the ratio still on a downward trend from 2012, construction of new apartments and condominiums is one of the fastest-growing segments in the construction industry, though slowdown is expected heading into 2021 as the economy continues to improve and home buying, in turn, will increase. (Apartment & Condominium Construction in the US: Market Research Report, 2016) With the trend for millennials to delay home ownership, landlords have some insulation to market fluctuations, but still need to be cognizant of anticipated increases in the rent/price ratio.

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