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U.S. becoming a 'renter nation' says Olefson

Kevin Chupka
Executive Producer/Writer
Breakout

To many, the American dream always included the requisite house, white picket fence and 2.5 kids. While that goal is all still attainable, you may soon have to live in someone else’s house with someone else's fence. According to real estate attorney and author Shari Olefson we may soon become a nation of renters with Wall Street playing landlord.

The culprit, at least in part, is the expiration of the Mortgage Debt Forgiveness Relief Act. This piece of legislation, one that expired at the end of 2013, made it easier for owners with underwater mortgages to short sell their homes without having to pay income tax on the chunk of cash the bank forgave. In short, its expiration might make it worth your while to go into foreclosure instead of short selling.

Olefson says this potential surge in foreclosures would be most common in places that are still recovering from the housing bubble. “These also happen to be the states where you’ve got the big companies, the Blackstones and the big funds, investing in rentals. So a lot of these properties will end up as rentals,” she says.

And there lies the rub. As Olefson points out, investing in “scattered residential rentals” is very different than buying a high rise. “It’s not like having an apartment building,” she notes, “where all the kitchens are exactly the same, and they’re the same age and you have an onsite manager...You’re gonna see hundreds of complaints from renters in those homes finding hidden problems they weren’t aware of, or multiple calls to management and not having a response.”

From there she worries these big companies will dump investments they aren’t pleased with, flooding the market in areas where the home recovery is tenuous at best.

Adding insult to injury, these investors are driving prices higher. Olefson argues, “prices of homes in an area should be based on the area’s income but investors are bidding based on the rent they think they can generate and we know rents are going up much faster than incomes. So the homes are becoming less affordable for folks who want to buy making renting just a much more viable option.”

So where does it go from here? Olefson worries that Washington could get involved. Specifically, that lobbying efforts for renter benefits will succeed, making rentals an even better option than ownership, or in other words, making the U.S. a Renter Nation.