THE LUMBER MARKET: Rental Housing Facts

By / 2 years ago

A thoughtful analysis of the trends driving multi-family construction.


Because of the importance of single family units to the wood products industry, most analysts focus on the key driver for single-family units—ownership. Unfortunately most of us have a bias. We believe owning a house is the desired end game as we age and our income rises. We rent for a few years, then get married, and buy a house—sometimes because we expect children. (With younger adults deferring marriage and having children, the need to own a housing unit is also shifted out as well.)

Thus we compare rental rates with monthly cost of ownership and conclude that all other things equal, we would quit renting and become homeowners. The fall in home prices plus the surge in rent has brought the ratio of home prices to median rent back to levels seen in the 1990’s. However, as we will see below, all things are NOT equal.

The surge in ownership and house prices from 1996-2005 also supported the bias towards ownership. Rising home prices clearly made ownership a superior investment choice as well. (Though the choice is not clear cut given the fact that, over a 30-year period, an investment in stocks would yield a higher return than an investment in a housing unit.) Easy lending standards and the elimination of a down payment requirement, enticed younger households into buying a home, even if they could not afford to make the payments. Besides, the conventional wisdom was that house prices NEVER fall— a view that was given intellectual support by none other than Alan Greenspan.

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Lynn Michaelis

A partner with Forest Economic Advisors (FEA), Lynn Michaelis has nearly 40 years of experience in the forest products industry. This column was excerpted with permission from FEA’s “Spotlight.” To learn more, visit