Probably didn't happen because turning most apartments into condos just isn't worthwhile. Not only were houses being built all over, so were condo units. Why pay $115K for your two bedroom when for $130 you get a new unit with a garage and a partial yard?

But all those people buying those properties were either out of the rental market, or speculators who turned around and rented them again. When a landlord sells, it's lot like the building gets knocked down or boarded up.

even though housing prices were going up, i would suspect the ratio of renters to buyers stayed the same or shifted toward more buyers and fewer renters, placing less demand on rental properties, and essentially came out as a wash.

What's the ratio of apartment complex-style rentals to houses for rent?

Around here (upstate NY), most rentals are houses, but my anecdotal experience is that large swathes of the country are covered in apartment complexes.

If it's the case that most rentals are in dedicated apartment buildings, then it doesn't seem like those sorts of places are easily sold by landlords and converted to for-sale, single-family dwellings.

Just speculating, though, as I have no data to back up any of this.

My personal experience renting out a 2-bedroom condo was that demand for mid-price rentals dropped (as buying became a viable alternative), while demand for high priced & low priced rentals stayed level. Thus, rents for mid-priced rentals dropped significantly.

The nice thing is that we don't need to argue by anecdote: the government keeps good, solid data on rents and housing stock composition. Rent histories themselves are in the CPI at bls.gov, vacancy rates by type of unit are at http://www.census.gov/hhes/www/housing/hvs/qtr108/q108tab3.html

Nationally, then, single-family-detahced rentals are 35% of the housing stock, so indeed most rentals are in multiunit structures. The condo market generally is more easily supplied with new construction. That said, 35% of the housing stock is a lot of housing. What landlords were thinking holding those properties and not selling into the bubble market eludes me.

As for demand by price, I'm not seeing an increase in vacancy rates by price, beyond mere noise, but I just spot-checked a few quarters. Take a look; maybe I missed something.

This *is* anecdotal -- I've been renting since 1986, in the midwest mainly: rents shot up around 1993-1995, more or less doubling at that point; but they've stayed flat since then (in the areas where I rent, which again, that's mainly the midwest, with brief stints in Idaho and NC).

"... What landlords were thinking holding those properties and not selling into the bubble market eludes me."

Some of them were thinking why sell when I can refiance instead and pull out enough cash for down payments on n more houses thus getting really rich if prices continue to rise (which is what most people expect in the middle of a bubble).

Ezra,
Renters went from renting to home/condo-owning. Supply of ownership units kept pace with demand and new entrants did not have a significant impact, apparently.
Also, the numbers are aggregate. IN Seattle at least, rental prices in places with significant condo-conversion or new construction were going up at pace with housing but weren't going up elsewhere.

The reason rents did not go up was because interest rates were low which made housing relatively cheaper and more attractive. The key determinant of buy/rent is the monthly cost of owning versus renting. Those costs went down with low rates and all the mortgage shenanigans.

In certain neighborhoods, rents did go up quite a bit. If rents here in my neighborhood of DC were still at 2000-levels, I'd be living pretty darn well.

Maybe it is because a lot of the buying bubble was speculative, and funded with OPM. Renters pay rent because they need a place to live, and they pay real money out of their own pockets. A huge speculative bubble in rent would be impossible, because people just couldn't afford it.

what charlie and tom said , but in conjunction

This was your the sign of trouble: when it's cheaper to rent than to own, then you know there's a real estate bubble. It was one of the many warning signs out there for the past few years. You had all these landlord wannabes that were "flipping" houses. They had no clue that they could never collect enough rent to pay the mortgage and taxes. Idiots.

Because noone wants to live the rest of their life in an old, run-down apartment that they are now responsible for all upkeep and maintenance on. I don't know about the rest of the country, but in Texas (the parts of it I've lived in at any rate) most apartments are pretty shitty.

A purely rational landlord would need to anticipate that the difference in price between their sale, and when they re-invested in housing, the profit on that sale as against the purchase would cover the transaction costs on both transactions, plus, the value of the lost rents, less the interest on T-bills in the time in which they didn't own houses, plus anticipate a hefty premium against that not happening.

Given that one of the hottest investment products was also backed by the property market, the alternatives were just not there.

Apartments are cheap to build and tend to go in areas where houses might not do as well(poorer school districts, airport flight paths, close to highways). There has been a slow increase in house rental prices here in N. Texas, but apartment rents haven't changed much in the last 10 years--says this longtime renter.

Plus the place I'm renting now is too small to sell--all the bubble houses here were giant new McMansions. This is a 1971 ranch with tiny bedrooms and a funky decor--why buy old when you can buy more new for the same money?

Marcin Tustin, unlike you (and really, unlike all these argument-by-anecdote kids), I check data and run numbers. To settle an argument during the height of the bubble I built a little monte carlo model and plugged in then-current rents and house prices, accounted for taxes and plugged in some rational assumptions about the joint distribution of house-price and investment-vehicle returns.

It turns out that, even at the height of the bubble, one in four plausible futures saw owning come out ahead. This is due to the supremely generous government subsidy. Landlords do not get this subsidy. For a landlord at the peak of the market, you had to plug in truly unreasonable assumptions in order for holding to beat selling and investing. There was simply no comparison.

If you are a landlord of single-family detached housing who ran his own numbers and came to a different conclusion, I would be very interested to see your inputs.

Rents are closely related to interest.

too many apartments and houses were being built

there was a building boom too

Question for wcw:-
Huh?

For a landlord at the peak of the market, you had to plug in truly unreasonable assumptions in order for holding to beat selling and investing. There was simply no comparison.

Rationally speaking, yes. But if you're a landlord, and you're good at being a landlord, and you have a positive cash flow, you might figure, "why rock the boat?" when the checks are coming in each month. Landlords know a lot about being a landlord and probably don't know as much about investing in the stock market. Thus, it's going to be pretty difficult to convince an established landlord to cash out, even when it might make sense to do so.

This was your the sign of trouble: when it's cheaper to rent than to own, then you know there's a real estate bubble

?

On a month to month cash flow basis it is *always* cheaper to rent than to own. Just like it only costs about 30 bucks a day to rent a car but at least $20K to buy one.

Now, there are a multiplicity of factors on which is cheaper over the life cycle, if that's what you meant. But in general, renting is cheaper for less than three years, owning is cheaper for over eight, and in between depends on the rates of asset value appreciation and inflation.

wcw,

diversifrication would be number 1. I own numerous properities, most purchased during the height of the bubble, only one do I regreat. Real Estate when combined with stock market investments is part of a balanced portfolio. I'm in Vegas so on paper I have seen houses drop 20%, but it's only paper. It's an incredible time to be a land lord here, i wish I had 10 more houses. I was able to pick most up with next to no money out of pocket. An investor trying to do that today wouldn't stand a chance. Minimum you need 30% down now which makes it a terrible investment.

I would be interested to see what assumptions you used in your simulations and finding out if you actually own any property or just study it. Your results seem totally detached from reality.

well, the flip side is that because of the reduced prices I am contemplating buying so maybe the cycle continues

Wcw, I do not own any property in the US, so no, I ran no numbers.

I'm interested to know what classes of investment you were including in the investment portfolio to replicate the risk profile of rental property (or indeed, owning property and using it as collateral for investment in something, whether or not a balanced portfolio or more property).

Well, this is something I'd like to actually confirm in the data, but one answer is that the marginal (lower income) households facing foreclosure (or some not going into housing purchases in this environment) are doubling up with family members. In other words - the margin of adjustment is not an increase in the pool of searching renters, but an increase in the number of occupants per housing unit. Again, I don't know if this is borne out by the data, but I'd like to see more on this. Especially as it would relate to the rental price dynamic.

If anyone is selling an apartment building/complex consisting of 150 units or more located in the United States, we may be interested in buying.

We like buildings built after 1979, but will take a look at almost any complex if the cashflow is good.

We will need to know the current Net Operating Income.

http://www.SeriousApartmentBuyers.com