Renting is an established business practice which was around since the introduction of private property. It got a solid footing after the introduction of public transportation during industrialization and urbanization. In the recent years, this market is undergoing a substantial transformation. Internet increased the availability of information, while modern listing platforms enhanced the transparency and accountability of the industry. Real estate agents and brokers still control the large segment of the market, but the situation is prompt to change. Let’s review the milestone of the industry development to get a comprehensive picture.
Property Renting History
Property renting existed since the transition from feudalism. Nevertheless, it was mostly estates rented for commercial purposes or urban residential rentals for merchants and bourgeois. Majority of the people resided in the rural areas and lived as homesteaders. Residential renting was an informal and unregulated market. The real rise of this practices began with industrialization and rapid urbanizations. Initially, people settled on the outskirts of cities in the poorly managed slums. Urban residents did not rent a place, they just built a small shack on the vacant slot of land and moved in.
In the New World, everything started to change with the introduction of the planned communities in the early 19th century. They emerged primarily due to massive construction of the railroads. First planned communities were railroad suburbs. Steam railroad lines facilitated the development of notorious New York City suburbs such as New Rochelle, Yonkers and White Plains. However, renters were only a small fraction of the suburban population. Those suburbs were populated by the wealthy, who worked in the city core. They prefer to live in the bucolics estates and socialize in the country clubs.
Renting Grew With Public Transport
The population of renters skyrocketed with the emergence of first public transit system – streetcars. Initially, there were horsecars lines, which were later replaced by cable cars and trams. Streetcar suburbs mostly hosted blue-collar workers who worked in manufacturing. In contrast to railroad suburbs, which formed small residential pockets around the station, streetcar suburbs comprised continuous corridors extending outward from the urban core. Those neighborhoods had a first large-scale infrastructure with shops, groceries, drug stores built close to the intersection of major streetcar lines.
Unlike slums with no legal ownership, construction of those neighborhoods was sanctioned by the city, so the property rights were guaranteed. Investors securуly poured money into those areas to construct tenements for rent. The mass migration of low-income workers into this suburban quarters sustained the demand for rentals.
Initially, the field of renting was unregulated and mostly informal. Tenants had absolutely no legal guarantees against the landlords wimps and sudden evictions. This was especially true for certain cities where developers maintained a monopoly and could single-handedly raise prices. Therefore government officials started to push for certain regulations. Between 1919 and 1924, various states and cities adopted eviction- and rent- control laws.
Rentals were the main type of urban dwelling for decades. However, in the US they went out of fashion after the New Deal policies introduced under president Roosevelt. Fannie Mae and Freddie Mac, government-sponsored enterprises, inflated the secondary mortgage markets. That increased amount of money available for lending making mortgages cheap and accessible. Additionally, automobile use has significantly increased. The middle-class family started to migrate to their own single-families homes in more distant suburbs. Public transit use declined and street-car neighborhoods died out.
Popular return to renting in the US happened in the 2000’s, specifically after subprime mortgage crisis and the housing bubble. Slow economic recovery curbed the opportunities for new home purchases. The unstable job market and high mobility of the workforce made renting popular once again. Nevertheless, the economy slowly recovered and by 2017 returned to pre-crisis level. The rate of foreclosure and underwater mortgages returned to traditional levels. The housing prices recovered in major cities. Yet the traditional aspiration of owning a home lost its popularity.
According to Sarah Strochak, a research fellow in Urban Institute: “The number of households in the US is continuously increasing, but with growth in owner-occupied units stagnating, almost all the housing demand in recent years has been filled by rental units.”
Millennials Attracted To Urban Living
Millennials are leading this trend. They are no longer attracted to suburban living and secluded family residences. Younger generation looks for a vibrant culture of the city, with the high concentration of entertainment venues, theaters, and restaurants. This trend caused new types of development – urban villages. Those neighborhoods are high-rise, pedestrian friendly and locate in the close to proximity to the Downtown and major employees.
Rentals Web-Based Platforms
Another recent trend that is shaping the market is internet real estate. Web-based platforms and applications transformed how people search for homes. Previously potential tenants were looking through newspaper or contacted the brokerage. That created an enormous information asymmetry between consumers and professionals in real estate. Brokers and agents were prone to speculating with the price for higher commissions. Nowadays, 90% of customers search for their future home online. Different listing services, such as Craigslists, permit customers to obtain general information about the property, contact the landlord or broker and decide where to rent. Companies like Trulia and Zillow, take a more thorough approach. They provide information on specific communities, crime rates, quality of schools, median prices etc. Those data are paired with interactive maps that let one navigate through the various neighborhoods. It is not plain advertising, it is letting customers make a knowledgeable decision.
A new generation of online real estate platforms takes this approach even further. Theн position not only to aid the apartment hunt but also to provide the full range of rental service. Platforms like Rentberry aims to empower tenants and landlords by creating a new mechanism of communication. Rentberry introduced custom offer feature, which let tenants offer their price for the rental. It empowers landlord to adequately access the demand and adjust the asking price accordingly. It not only improves analytics for landlords but also enhances efficiency for apartment seekers. Tenants find apartments in less manual and more automated way.
With the growing popularity of the digital real estate platforms, the old-fashioned brokers and agents are undermined. First-hand market knowledge and personal connections of agents can no longer compete with extensive databases and search engines of the online real estate platforms.