Economy Boosted With Rise In Rental Income September Report Shows

The economy grew 2.7 percent in the third quarter of the year—up from the just 1.3 percent in the second quarter earlier this year. CoreLogic notes that economic growth received a boost from residential investment, which has not contributed to market growth much, until now. Economists say, “The real estate cycle is now contributing to economic growth. This is good news because residential investment is the most important cyclical component of the economy.” Disposable income has only increased 1% year-over-year as of September, but rental income of residential properties has increased much more substantially. Rental income is defined as “gross rents for homeowners and renters minus the associated cost of financing and other expenses.” Rental income of residential properties rose 12% from September last year.

CoreLogic says that this growth shows no signs of slowing down. Interestingly enough, total rental income from residential properties includes income from homeowners. This is true because analysts account for “imputed rental income from the flow of services to homeowners.” CoreLogic attributes the 12% growth to “fundamental shifts in the housing market, driven by a large increase in affordability and rising rents.” The total for 2011 was a staggering $126 billion. Homeowner rental income was an even greater $257 billion. Homeowner rental income grew about 28 perfect per year over a five-year period, while investor rental income grew 15% per year.

Silicon Valley Tech Boom Responsible For Inflated Bay Area Rent

While examining the various reasons for the rise in rental income across the nation, one thing is clear in Silicon Valley: blame the tech boom. San Francisco’s explosion of tech-startups is not only inflating the commercial real estate market, but it is also having a great impact on the residential rental market. Since January of 2011, annual rents are up by $5,000. Data from Apartmentlist.com notes, “Over a 16-month period, asking rents in those cities [Daly City, Palo Alto, Menlo Park, Mountain View, San Bruno, San Mateo and Sunnyvale] went up an average of 44%.” Buying a home in Silicon Valley is competitive given the growth of the Bay Area real estate market. Buying Palo Alto real estate and other exclusive properties in the highly coveted Silicon Valley market will not be met without competition despite the rising costs.