Nationally, renter turnover has declined from around one-in-three renters moving each year in the 1980s and 1990s to today’s rate of one-in-five, according to Zillow.
The 55+ crowd has stayed consistent, with 10%-15% of renters moving each year. However, the other end of the demographic spectrum is dramatically altering renter turnover trends. Younger renters are digging in their heels and moving less often.
The biggest drop in turnover took place in the youngest renter group — over 60% of those aged 18-23 used to move each year in the 1980s. In 2016, just 49% of this age group moved.
The Zillow report notes more expensive areas of the country tend to see lower turnover rates. Renters are less inclined to move out when rents are increasing rapidly, since they’re more likely to get a better deal by renewing or extending their existing lease. Landlords are also apt to compromise with a slightly below market rent for repeat tenants who have a history of timely payment since they save money on turnover costs.
Local rent control ordinances also play a role in low turnover.
Rent control incentivizes tenants of rent-controlled apartments to remain in place when area rents are rising, as they are in California. It’s meant to keep long-term tenants from being forced out of gentrifying neighborhoods, but rent control ultimately creates enemies of landlords and tenants.
Why agents care about renter turnover
Low renter turnover is a symptom of the underlying problem for real estate agents: abnormally high rents.
Renters in California’s popular coastal metros are spending on average half of their income on rent, where they ought to be spending closer to one-third.
The result is:
- less spending on goods and services that support local economies;
- insufficient money available to spend on necessities, like healthcare; and
- lower savings rates.
Less money stashed away in the bank results in less money squirrelled away for a down payment. This stalls home buying and makes the market languish — a thing agents should be very concerned about.
The solution? Lower rent prices. But rent control and similar measures are clearly not the best route.
The best way to ensure lower rents is more residential construction. However, in California the number of multi-family construction starts in 2016 was 4% below 2015. To reverse this trend, builders need help, and soon.
Local governments encourage new construction by implementing looser zoning to enable higher density in desirable areas. They can also smooth out and streamline the permitting process to speed up building. Residents — and forward-looking real estate professionals — can get involved by voicing their support at local city council meetings.