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Why The Nation's Rental Market Is Exploding


Rental markets are hot in so many places, and people just don't seem as eager to own a home. For the national picture, we turn to David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. We began with why rents are increasing so dramatically.

DAVID WESSEL, BYLINE: Well, it's pretty simple. Supply isn't keeping up with demand. Over the past year, the number of renters rose by 2 million while the number of homeowning families in the U.S. fell by 400,000. So you got more people wanting to rent, and they're not building enough rental units to accommodate that, so the rents go up.

GREENE: OK, so demand is really at play here. Let's figure out why demand is going up. Why are more people choosing to rent over, say, buying a house?

WESSEL: I think there are a number of things at play here. One is a lot of people were burned in the housing market over the last few years. People now realize that housing prices can go down as well as up, and that's made some of them uneasy about buying. Some of the newly-formed households - young people graduating from college are finally moving out of their parents' basements - are finding that their jobs are too low to buy houses at today's prices, even though mortgage rates are low. And it's particularly hard for first- time homebuyers and anybody who has less than a stellar credit record to get a mortgage. It's getting a little easier, but that's still a big obstacle.

GREENE: You know, we've done a lot of reporting on the program about how many college grads are just buried in student debt. Is that at play here? I mean, does that really cripple a lot of younger people in terms of their ability to buy a house?

WESSEL: Well, there is some evidence that millennials who have more student debt are more likely to be living with their parents rather than out on their own, whether renting or owning. And certainly anybody who's behind on their student loan payments is going to have a lousy credit record, and that's going to make it hard to get a mortgage. But economists at the New York Fed looked at this pretty closely and they find that, in general, college grads are more likely to own homes than people who didn't go to college, whether or not they have student loans. If you have a student loan debt burden, it doesn't affect so much whether you buy a house, but it does mean that you buy a little later in life.

GREENE: Let me ask you about another potential factor here. I mean, there are some scholars who have suggested that there's just a different mentality these days than in the past in this country that homeownership is just not necessarily part of the American dream for more and more people. Is that part of what's happening here?

WESSEL: I think homeownership remains a big and surprisingly large part of the American dream for a lot of people. A lot of people think being middle class means owning your own house. But there is a growing minority of people who say why bother? So I think there is some subtle change in that dynamic.

GREENE: Well, so, David, look forward to the next few years if you can. I mean, with the forces at work that you're talking about, are rents just going to keep climbing? Are they going to hit some kind of roof at some point?

WESSEL: Well, look, already we see more construction of multifamily units this year than any year since 1989. Just not enough supply is coming on quickly enough to satisfy this demand. So some of this will sort this out over time, but the trend away from homeownership is likely to last for a while. Interestingly, the Urban Institute projects that over the next 20 years, there will be 22 million more U.S. families and two-thirds of them will rent rather than own, which is a big change.

GREENE: David Wessel is director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a contributing correspondent for The Wall Street Journal and also a frequent guest on our program. David, thanks as always.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.