Inner City and Elsewhere Rental Housing Market Trends

November 27th, 2020

Recently, the U.S. Census Bureau had announced that the rental vacancy rate for the third quarter of 2020 had been record low – 6.4 percent, the smallest number since the middle of the 1980s. The serious setback of the economy experienced due to the corona virus pandemic, had delayed many projects, yet, it seems like the solid demand for rental units in the USA will continue to grow. This certainly encourages investments in housing real estate properties including, but not limited to rehabilitation of older buildings in downtown areas or the purchase of premises in newly developed areas.

Generally, there are two types of inner city neighborhoods: the safe ones and the dangerous zones. A research of the Harvard’s University Joint Center for Housing Studies (2020) had indicated that in the last years there had been a constant growth in the number of higher-income renters ($75,000 + annual household income). This had created a demand for luxurious properties in the safe core metro areas and had shifted more construction projects as there is a limited supply of new rental units in the centers of the cities. New units are usually amenity- rich, air conditioned and have in-unit laundry facilities, on the premises of the building tenants expect to have parking, pool, gym, etc.

On the other side, the dangerous inner city areas where many of the low-income renters live had recorded the highest rate of vacancies and number of evictions even before the pandemic. State subsidies awarded as direct payments to landlords had helped many low-income renters who were not able to keep up with their payments during the economic slowdown. With the extended Covid – 19 eviction moratoriums put in place; many landlords hope to receive further federal assistance paid directly to them. If not, housing advocates warn about an impending eviction crisis in these vulnerable areas. Therefore, fix and flip entrepreneurs should carefully consider the potential of vacant units located in proximity to the busy urban areas as they can be some hidden gems out there.

Cincinnati downtown area is the perfect example of a recent rehabilitation of an entire downtown. Prior to 2012, the 18th century neighborhood called by the locals “Over the Rhine” was a run-down unsafe area with the highest crime rate in the Greater Cincinnati area. German settlers had established the charming locality more than a century ago and the most beautiful buildings of the city as the Cincinnati Opera are to be found there. Investors and local authorities worked together on bringing the place “back to life” and in 2020 downtown Cincinnati area (including Newport, KY) continues to evoke heavy investment in the development of new luxurious rental units.

Additionally, both in rural and metro areas, a higher demand for bigger rental units (2 bedrooms) trend is indicated in 2020 as extra space for a home office is needed after the “smart” work has been implemented by many employers. Also, the millennial generation is now beginning to have children and looking for spacious units that are closer to parks. Furthermore, there has been an increase in the demand of single family rental units as they offer privacy, there are no shared premises and the property usually has a yard or a patio.

The increasing rental housing needs in the face of growing populations and the lack of home affordability are some of the factors that had led to the record-low vacancy rates and the steadily rising rents. The U.S. rental housing market has shaped as an attractive business field to enter and so private investors, fix and flip entrepreneurs and construction companies shall be looking for cost-effectives ways to both remodel existing units and build new rental housing.