People need a place to live whether or not they have the credit to get a mortgage. During the aughts, “innovation” in mortgage-lending expanded the pool of mortgage eligible people. The collapse of that technology and the knock-on consequences of foreclosure and unemployment have shrunk the pool of mortgage eligible people to below where it was before the takeoff. But still folks need a place to live. The logical thing to do would be to convert a large share of the country’s existing stock of housing into rentals.
And it’s happening, but as I think Motoko Rich’s article about foreclosure to rental conversions makes clear it’s pretty logistically difficult. Some of this is simply inherent to the difficulties in large-scale operation of single-family homes as rental housing and some of it is a lack of know-how. The firms that figure out how to do this reasonably efficiently and reasonably quickly will have a large advantage because the fundamentals are just so overwhelmingly strong. Prevailing low interest rates play a big part in this and should have upstream and downstream consequences throughout the economy. A couple of blocks from my place you can buy a 900 square foot condo for a monthly payment of $2,586 per month at 400 Massachusetts Avenue if you qualify for the best interest rate. If you don’t qualify, you can rent at 425 Massachusetts right across the street and pay $3,180 a month in rent for 887 square feet. This is all multi-family housing, unlike the properties Rich is talking about, and the basic implication is that renters with good credit scores should be running to get out of apartments and banks should be desperately seeking developers who want to borrow money and build new rental apartments.
