One Owner, One Roof

by Reihan Salam

Last weekend, I visited one of my best friends, who recently purchased a house in a major U.S. city. For years, this friend has argued against homeownership, yet here he was making the plunge. In one of our money conversations on the subject, he explained that the rental market for single-family dwellings is very limited. And on Sunday, he made the obvious but important point that this reflects a fundamental agency problem: renters are not as concerned as owners about maintaining a property for the long-haul. Earlier this week, Felix Salmon wrote about this dilemma as it relates to the wider economy. Right now, an extraordinary 89 percent of single-family homes are owner-occupied. 


So, who will the new landlords be, as we go from a country where 11% of detached houses are rented to one where that number is significantly higher?

They won’t be individuals, I don’t think. There’s something very eggs-in-one-basket about buying a big suburban home just to rent it out: a single bad tenant can devastate you, financially. But at the same time, property management companies understandably much prefer to look after big apartment complexes than sprawling suburban subdivisions.

In an era of very low interest rates, the relatively high rental yields on houses would be quite attractive to investors, I think, if they could somehow be turned into tradable securities. But the costs of buying and managing all those properties would surely be so substantial that they would take a substantial bite out of headline rental yields.

Someone will have to figure out how to make this work. And whoever does will become as wealthy as the architects of containerized shipping. I’m guessing that the ultimate solution will involve mobile teams of salaried maintenance workers who will have access to low-cost transportation, lawn-mowing robots, and remote sensors. If this sounds creepy to you, well, chances are you will eventually get used to it, particularly if it saves you money.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.