New Federal Housing Rescue Plan May Buttress Rental Shadow Market

July 14th, 2009 by Matt DiChiara| Posted in Political Corner | 2 Comments »

Atop today’s DrudgeReport, labeled with the either facetious or insightful headline, Landlord in Chief: Obama Mulls Rental Option for Homeowners, was a link to an article outlining a new plan from the federal government to combat the housing crisis that could have some major impact on the apartment rental market.

According to the article, U.S. government officials are considering a plan to pay the mortgages on houses that would otherwise be foreclosed on and then rent those houses back to the former owners at a price they would be able to afford. The funding for the program would come from an unused portion of a $50 billion housing aid program.

This new idea comes as a response to the slow progress that February’s housing rescue plan has made; apparently, constricting red tape and rising interest rates have hampered the program which was to refinance mortgages and lower payments for millions of at risk homeowners.

This could have a major effect on the apartment rental industry, as the program amounts to a government subsidy of the rental shadow market. Just today, Multi Housing News reported on a presentation entitled “U.S. Apartment Markets Outlook” by Greg Willet, VP of Research at YieldStar, which gave a comprehensive rundown of expected supply and demand for the upcoming quarters.

One observation that Mr. Willet shared with the RealPage Conference attendees was that in 2008, the shadow market absorbed a lot of renters, as homeowners attempted to recoup some of their losses by renting out their homes. This year, more and more of those rental units are being foreclosed on and driving renters back into the apartment market.

If the housing rescue plan goes through, Mr. Willet’s predictions that “[rent] revenues will come down a little bit more, maybe somewhere around 2 percent…and real recovery will take place between 2011 and 2013,” would certainly seem accurate.