Real Estate News

As percentage of homeowners falls, Wichita looks to more mobile future (+video)

Potential tenants Javier and Annette Santiago tour an apartment at Sunstone in Andover with property manager Ryan Farrell, center. (Dec. 31, 2015)
Potential tenants Javier and Annette Santiago tour an apartment at Sunstone in Andover with property manager Ryan Farrell, center. (Dec. 31, 2015) The Wichita Eagle

The notion that all Americans aspire to own a home may be going the way of the flip phone.

Renting in Wichita, along with the rest of the country, is growing much faster than buying, with important implications for the community’s future, say some experts.

In Wichita, 80 percent of population growth since 2009 rents, according to the 2014 U.S. Census. And while the city has gained 5,000 rental units since 2009, it has lost 2,500 owned units, as homes are lost or converted to rentals.

That’s a dramatic shift from a decade ago when then-President George W. Bush proclaimed the goal of an “ownership society,” a nation in which people of all races and incomes would build wealth and civic responsibility hand-in-hand.

Government programs, financial engineering by Wall Street and easy credit on Main Street pushed home ownership levels to new heights. But it blew up violently amid foreclosures and finger-pointing – taking the global economy with it.

We’re still living with it to this day.

Some experts say that the housing collapse permanently scarred many Generation Xers, now in their 30s and 40s, and gave millennials, now in their teens and 20s, a lot to think about. The age of first home ownership keeps rising and is now 33.

Sarah Winegar is 28 and works at a bank. Her husband, David, is 35 and drives a bread delivery truck. They have three preschool-age children.

They’ve rented for seven years. About a month ago, she said, they moved to a new rental house near 13th and Ridge. She loves that they had the ability to give their last landlord 30 days notice and move.

She said they don’t feel “ready financially” to buy a house.

“We would like to eventually,” she said, “but we don’t want the financial responsibility of repairs and upkeep. And, with raising three kids and daycare costs, if something happens we just don’t want to pay for something breaking.”

What happened

Every Wednesday morning, house flippers and lawyers representing mortgage lenders gather in a conference room in the basement of the Sedgwick County Courthouse for the sheriff’s sale. Every week, dozens of homes go through the last leg of foreclosure when they are actually bid on to settle the unpaid mortgage.

The housing collapse, followed by a deep recession and 20,000 layoffs, led to a local surge in mortgage foreclosures, peaking in early 2011 when nearly 2 percent of Sedgwick County mortgages were somewhere in the foreclosure process. That rate was far less than the worst-hit places, such as Las Vegas or Tampa, but twice the rate it is now.

Going through foreclosure wrecks a person’s credit. It could mean a drop of 100 points or more on a good FICO score, according to website Bankrate.

The reaction – tightened lending standards to reduce bad loans – didn’t help people with bad credit seeking to buy again.

But “people gotta live somewhere” became the mantra of the city’s landlords as they learned to discern between prospective tenants with a foreclosure and ones without enough money to pay their bills.

In 2009, there were about 117,000 renters in Wichita. By 2014, that had swelled to about 135,000, an increase of 15 percent.

People living in owned homes rose from 240,000 to 245,000, an increase of just 2 percent in the same period.

Renters now make up 35 percent of the city’s population.

Who are the new renters?

A look at a Wichita census map shows three distinct places that rentals are growing the most rapidly: newly constructed complexes on the edges of the city, conversion of downtown office buildings into apartments, and the conversion of houses in the city’s neighborhoods.

Apartment complex construction in more suburban parts of the city or suburbs continues its rapid pace. In the past year, these areas added, or are in the process of adding, more than 1,350 units, according to the most recent Martens Commercial investment property forecast.

The financial case for apartment construction is strong. Occupancy rates are high, rents are rising, the cost of borrowing is very low and there is plenty of investment money desperate for good returns in a low-interest environment.

In the Martens forecast, the firm said that all this new construction may overwhelm demand in the short run, but longer-term trends remain in their favor with more millennials and empty-nest baby boomers seeking to rent, rather than buy.

Downtown redevelopment also is speeding up, with more than 500 units under construction or announced. These projects range from the massive $66 million renovation of Exchange Place at Douglas and Market to new construction, such as River Vista, an apartment and retail project on the west bank of the Arkansas River.

And, lastly, as small investors saw an opportunity to profit from foreclosures and generational turnover, homes in many city neighborhoods have become rentals, perhaps only temporarily.

For instance, Census Tract 62 – roughly Hydraulic to Hillside and Pawnee to Harry – saw a gain of 113 renting residents and a loss of 222 home-owning residents between 2010 and 2014.

That kind of flip from homeownership to renting has taken place across the city, in neighborhood after neighborhood. Twice as many census tracts in the city Wichita lost home-owning population as gained it. And 40 percent more tracts gained renters as lost.

There has been a social change in attitudes toward renting, say some renters.

Javier and Annette Santiago are in the process of moving to Wichita and are likely to take a two-bedroom unit at the upscale Sunstone Apartment Homes in Andover — a unit that will cost $1,100 a month.

Javier Santiago, a staff sergeant in the U.S. Army, has moved several times, so renting is what he’s always done. But at 32, he’s old enough to have lived through the housing collapse.

“It did change how I feel about owning,” he said. “I had relations that went through foreclosure.”

What does it mean?

It’s impossible to know how far the home ownership level will fall, but one of the main predictions is that more renting means more mobility, for better or worse.

More workers will be able, with perhaps a month’s notice, to change cities. They won’t have to wait weeks or months, and pay thousands of dollars in fees and closing costs, to leave.

Economists have long noted that home ownership makes workers sticky. Because people aren’t willing or able to sell houses in stagnant areas, they don’t flow easily to places where the economy is hot and their skills are needed.

The vast majority of laid-off Wichitans, instead of leaving for work during the recession, simply hunkered down and figured out how to make ends meet.

It’s not the only reason people stay or go, but it’s a big one, especially this time around when it affected home prices and credit so directly.

The national economy would actually be stronger if people were more willing to flow from slow economies to hot ones, just like investment money does, said Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University.

And, Hill said, the choice to rent by Gen Xers and millennials is a reasonable response by people who have suffered through layoffs and fruitless job searches. Many people feel burned by the promise of home ownership and are still anxious about their jobs. They want a better escape hatch.

But what’s good for the country may not be good for Wichita. It means young and mid-career workers could leave as easily as many of its best and brightest students already do.

Hill argues that Kansas could benefit if all of this mobility means more people returning to the state with the education and skills acquired elsewhere.

Another often mentioned effect of a larger renting population is increased disparity of wealth.

According to the Federal Reserve Survey of Consumer Finances, the median homeowner had a net worth of nearly $200,000 vs. the median renter who had just over $5,000. Of course, this in part reflects that wealthier people buy homes rather than rent.

Stan Longhofer, director of WSU’s Center for Real Estate, said that a house acts as an enforced savings mechanism, albeit fairly costly over the life of a 30-year loan.

“Renting makes you better able to deal with shocks, to adjust,” he said. “The flip side is that homeownership is a fantastic way to build wealth. It’s actually forced savings.”

Hill said that the other side of the equation is renters may choose renting as a way to free up some income for other spending, such as vacations and restaurants. It may, in the future, mean more discretionary spending.

New mobility vs. sticky worker

Newcomer Steve Waters was moving into a unit at Bennington Place near 21st and Maize Road last week with the help of his family.

Their dilemma aptly illustrates the new mobility and the sticky worker, and the conflict between them.

Waters, from Mansfield, Texas, a suburb of Dallas-Fort Worth, just took a job as chief operating officer of Quality Health Care, a geriatric psychiatric medical services company based in Wichita. He’s excited about the job and the possibilities for career growth.

But the family housing plan is a bit messy. His wife, Sundy, teaches fourth grade in Mansfield. Their son, Grayson, attends fifth grade there. They will stay, while Steve Waters drives back and forth.

They will have two payments. Sundy Waters said they will talk again in the summer about the future.

They had just bought the perfect house, she said, two blocks from the school. She’s reluctant to move and give up their friends, and she’s also reluctant to waste the thousands of dollars of transaction costs to sell a house and buy a new one.

“We’d be throwing money away,” she said. “It makes me crazy.”