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.
In the Late nineteenth century the population was growing at a rapid pace. The country had people flooding the biggest cities in the country such as New York City and Chicago. These populations were gaining more and more people every single year and the country has to do something to make places for these people to live. The government would go on to create urban housing programs. These programs were created to make homes for these people to live in. At the time it provided a place for people to live but as the populations grew it became a more cramped and rundown area because of the large populations in one place. These reforms eventually led to these areas becoming dangerous, they were rundown, and it created a hole that was difficult for people to get out of.
Lastly, practicality, which includes time pressure and flexibility, can be considered an irrelevant factor in this public policy formation. As it is mentioned at the end of the article, “Rent regulation is very likely to go away, eventually, even without any explicit effort to kill it. Some 231,000 units have been deregulated over the last 30 years.” As older apartments available at an affordable price reach the end of their cycle, naturally new apartments for the wealthy are being constructed to replace them. Overall, in the debate over Rent Control, the six key factors that drive public policy formation must be considered in order to reach an effective decision.
There are different types of goods and they are normal goods, complementary goods and substitute goods. Normal goods means when there has been an increase in income (when employers/people receive their wages/benefits) and they are more likely to buy more finished goods from different stores, the demand for the goods will increase.
Markets have a big impact on the economy of any country. In the United Kingdom, one of the main markets that effects its economy is the housing market. According to FTI Consulting LLP (“FTI”) (2012) housing is of intrinsic importance to the economy and society. Housing has a dual role as: a human need, through its functional use as somewhere to live and the influence of its attributes on people’s well-being; and an asset, given that for many it is a long term investment which represents a large proportion of their wealth. The housing market is divided into two main types, the first type of housing market is known as the rental market where tenants rent properties from landlords (Anderton, 2008). The second type of housing market is the owner-occupied market where people buy a property in order to live in it (ibid). In recent years, several non-price factors have led to the increase of property prices in the United Kingdom. These factors are subcategorized into non-price factors of demand and supply. According to Anderton in Economics (2008) “demand is the quantity of goods and services that will be bought at any given price over a period
Rent control arrangements guarantee that rents don't soar from year-to-year. Like property holders paying a settled rate contract, tenants living in a rent controlled flat can typically know their rental expenses over the long haul. In places like London that rely heavily on rent control apartments to keep a mixed social equality for all and allow for housing for the rich and poor. If more apartments re rent stabilized or even rent control through an increase in new affordable housing it can lead to De Blasio more units being able for tenants to live in. Since rent prices have surged due to gentrification, it has been hard for the natives to continue to reside to what they always knew as home. Secondly, The preservation of federally subsidized afforable housing allows for homes to not be lost when landlords convert to a private housing.Since 1965, the government sponsor subsidies for low income housing which had been known as Section 236 mortgage program which Utilizes a financing cost appropriation to give moderate rents to low-income
House prices have been affected by the number of people who buy houses to rent out and this has had an impact on younger people wanting to buy homes. Thus, the term ‘generation rent’ has come to the forefront in recent years. In A Century of Home-ownership and Renting (The Open University, 2016) census data presented supports the claim for the use of this term. In the video, they mention levels of home-ownership dropped for the first time since records began. From 69% to 64% in the space of 10 years and the percentage of households privately renting has been on the rise. 11% in 1981 compared to 18% in 2011. In addition, house prices have risen faster than previous years and banks have also restricted lending. These factors have all lead to more people not being able to afford a home of their own, especially at a younger age. So, as house prices rise this benefits the home-owners and allows them to gain more wealth and capital. The distribution of wealth has been affected by changes in these markets. There is evidence to support this claim. Table 3.5 (Investigating the social world 1, chapter 3, p. 96) shows wealth distribution in Great Britain from 2000 and 2005. The table shows results for housing wealth distribution amongst other things. It’s important to look at the look at the lowest and highest percentiles to look at any
When someone makes the decision to buy or rent a home they must consider the advantages and disadvantages of each. In buying a home the primary advantage is that you actually own it. You can do whatever you want with it. Also, you are building equity as the years go by. “People today have problems saving for their future” (CNN Money, 2014). However, when they buy a home, the money they put down for a down payment is an investment. When the person sells the home they get back the down payment and the amount the property has appreciated in value. When looking at the advantages of renting it is easy to see the disadvantages of buying for some people. Even though you don’t get the money back that you put into it, renting could be a more satisfying option for some. This is because renting allows for flexibility. The person can move wherever as soon as there lease is up. Renters may see buying as “a reduction in lifestyle, moving to a smaller place, and perhaps a less expensive neighborhood.” (CNN Money, 2014). For example someone who rents an apartment enjoys how the complex keeps up the area and all the amenities it has to offer, and it is in an upper class part of town. However, when they buy they looks all the benefits, they have to do maintenance themselves, and move to an area they don’t particularly like to fit their price range.
Renters have gained a better understanding as to what transpires whenver a unit has been abaoanded or if they fail to pay their montlhy bill. However, this heintended level of awareness has a price and now renters are paying more for their monthly sotrage bills than ever before.
Walter Block states that economists have shown rent control diverts new investment which would have gone towards rental housing. He goes on further by stating rent control has led to housing deterioration, fewer repairs, and less maintenance.... ... middle of paper ... ...
...ue to increased repossessions and fewer first time home buyers, putting the landlord in a strong position” (42).
price of that good and service, and an increase in supply of a good or
Joseph Alcock reiterates that a “lack of affordable housing can be a barrier to a strong reliable economy” (9). High housing costs can influence where businesses and corporations decide to locate, which will affect the local economy. First-time homebuyers will most likely shy away from moving to Orange County because of these high prices on homes. In addition, many people leave after graduating from local college and universities because families probably not want to continue paying a lot for their own homes. These youthful passage level specialists drive neighborhood economies. On the off chance that they can't stand to live in the area, nearby economies will endure. An absence of affordable housing can push zone specialists to settle outside of the territory, bringing about longer drives, expanded movement blockage and contamination, diminished efficiency, and a reduced personal satisfaction for the area. An absence of reasonable rental housing confines the capacity of tenants to put something aside for an initial installment on a home, which restricts their capacity to in the end get to be property holders and assemble individual riches through housing appreciation. An absence of affordable housing improves the probability of vagrancy. An absence of reasonable housing has brought about congestion and critical increments in family unit and group stress. An absence of affordable housing causes families to live in substandard dangerous
However, the drawbacks of renting often drive tenants away, since redecorating choices are limited and various residences limit pet ownership, smoking and even overnight guests. In addition, rent is a never ending expense without any chance of building equity(Siegel & Yacht, 2009, p.166). Fearing their money is being thrown away renters are tempted to shop for a home and begin deliberations.
The main advantage to owning a home is the security blanket feeling one gets from being a home owner, having a stable base from which to raise a family, having a “home sweet home”. For generations, it has been a tradition to buy a home as one’s family begins to grow, a sign of progress and stability. On a financial basis, a home can be considered a storage of wealth, using a mortgage as a forced savings plan, increasing the equity as mortgage payments are made. Tax deductions are also an incentive to purchase a home especially in the earlier years of paying off a mortgage when much of the interest is being paid, and subsequently deducted from income tax. Home ownership can also allow access to home equity loans, that afford lower interest rates than some other debts and are also tax deductible (Trulia. 2014, February 28). Most
... Also important is the price of complements, or goods that are used together. When the price of gasoline rises, the demand for cars falls.