Lakeshore Analytics

The U.S. rental vacancy rate stood at 9.8% in the third quarter of 2011, up slightly from the previous quarter, but down from a bubble-era high of 11.1%, seen in 2009.

Rental vacancy rates increased dramatically over the period of 2000 to 2009. From 1965 to 2000, the average quarterly vacancy rate was 6.7%; from 2000 to 2009 it was 9.5%. During the real estate bubble, many households transferred from renting homes to owning homes, including new construction, increasing the homeownership rate and, as a result, reducing the number of households in rental housing.

Rental vacancy rates will be affected by a few forces:

• New household formations — During the recession, many young people stayed with family, and other households combined to save money. As the economy recovers, these consolidated households will unwind and demand for either homes for sale or rent will increase. Immigration and the population of working-age people also affect new household formations.
• Foreclosures — As banks unwind their foreclosure backlog, some families will move from “owning” their homes (even if they are not paying their loans) to renting apartments or houses. The backlog is several years, according to some sources.
• Development of multifamily apartments — Few houses are built specifically to rent, so the increase in supply of rental housing comes mostly from new apartment buildings. While apartments are one of the few
• Credit and other deleveraging — New households find it more difficult to move from rental housing to buying homes, so many households will stay in rental housing for longer.
• Owner-occupied housing converting to rental housing — Some houses occupied by owners today will be purchased by investors and rented out. This is more likely to increase the supply of rental housing, and with it may put pressure on rental vacancy rates. Renters of large (2- or 3-bedroom) apartments in walkup buildings may be tempted by the attractive rents offered in houses newly offered for rent.

Vacancy rates in the Midwest region largely tracked the U.S. average until about mid-2001. The Midwest reached its peak vacancy in Q3 2005 at 13.4%. The U.S. would not reach its peak vacancy rate for four years, hitting 11.1% in Q3 2009. In recent quarters, the Midwest has started to trend back to the national average.