CAR because the renter/unit relationship is neither direct nor linear. We were a good example and know many friends that essentially did the same. When we rented, we settled for a 2/2 townhome. When we bought, like our friends, we went SFR 3 or more/2.5 or more.

The rental market for 3 bedrooms or more is pretty lean. Selling those properties that have low tax rates will disporptionately hit the higher bedroom count of the rental market.. Essentially, you will see slightly less competition for significantly less properties in that property space.

Where today you may essentially have 11 people vying for 10 SFR rentals, after stripping the tax basis, I suspect you will end up with 9/10 vying for 6 or 7 available SFR properties. More competition on those properties will put upward pressure on rents there. While eventually the number of renter at a given property type balances back out, you have more people substituting a lower end good for a higher end good because the higher end unit isn’t available. That in turn actually pulls those rents up on the better quality lower end units which in turn pushes more up.

The second factor is many of those same properties that will get returned to the buyer pool are managed by small time landlords. In general small time landlords value stability in tenants more than the dollars. While your major property management firms will raise rents like clockwork on lease expiration, smaller owners often won’t on good tenants. The tax basis will again shift the property mix more to large landlords, large landlords that will raise rents relentlessly because they are going to have the market vacancy anyway.

Those two factors will create a rental environment that experiences more churn, more instability for the renters, more rent increases and more upward pressure on rent.