REI INK

From the Hill

Housing Market and Single-Family Rental Indices

Key Indicators All Showed Improvement in October by David Howard The National Rental Home Council (NRHC) serves as the trade association for the single-family rental (SFR) home industry. NRHC members include owner-operators, builders, vendors, and service providers of single-family rental homes across the country. Our mission is simple: The NRHC works to educate the public about the benefits of SFR homes and advocate for sensible policies that support the single-family rental market. Our aim is to help preserve and strengthen the availability of SFR properties and to support communities by providing a sought-after form of housing. We also provide members with industry-specific educational opportunities, market research, and other tools to guide them through the ever-evolving housing market landscape. In keeping with the Data & Analytics theme of this issue of REI INK, below are three indices which show signs of improvement in both the Single-Family Rental industry and the overall housing market. NAHM/Wells Fargo Housing Market Index According to the National Association of Homebuilders/Wells Fargo Housing Market Index (HMI), US homebuilder sentiment climbed for a second consecutive month to 43 — reaching a four-month high in October. However, sentiment under 50 still implies that homebuilders’ spirits are dampened. The increase was likely driven by optimism over further declines in mortgage rates and receding inflation, which could boost demand for new homes. The HMI exceeded economists’ expectations of 42, according to Bloomberg. Key indicators, including future sales outlook over the next six months, present sales, and buyer traffic, all showed improvement in October. 32% of builders reported cutting prices, while 62% used sales incentives. The average reported reduction was 6%. The index rose in all regions except the South, based on a three-month moving average. The North (51) was the only region above 50. CoreLogic Single-Family Rental Index SFR rents rose 2.4% annually in August 2024, according to the CoreLogic Single-Family Rental Index (SFRI). Meanwhile, measured month-over-month rents declined 0.2%. August’s annual growth rate was the slowest since late 2023. Broadly, renters expect 4.5% rent growth over the next 12 months, according to the Fannie Mae National Housing Survey. Low-tier rents declined by 0.2% — a rarity, as the last low-price tier decline was around the time of the Great Recession. Conversely, high-end rents climbed faster than average at 2.9%. Among the top 20 metropolitan areas tracked by CoreLogic, Seattle (5.8%), New York City (5.5%), and Washington DC (5.5%) led year-over-year rent growth. Sun Belt markets Austin (-2.3%), Phoenix (0.0%), and Orlando (0.2%) lagged behind the rest of the pack. Despite the slowdown, Phoenix and Orlando are still up 38% and 41%, respectively, from four years ago. Fannie Mae’s Home Price Index Fannie Mae reported home prices increased 5.9% over the past year. According to Fannie Mae’s Home Price Index, single-family home prices increased 5.9% from the third quarter of 2023 to the third quarter of 2024, a decline from the previous quarter’s annual increase of 6.4%. Government Affairs California Governor, Gavin Newsom, recently signed legislation impacting rental property owners in the state. Assembly Bill 2493 prohibits property owners from charging prospective tenants a screening fee to applicants not selected for a vacancy; and Assembly Bill 2801 requires property owners to provide photographic evidence of necessary repairs and proof they were completed before accessing security deposit funds. Industry Leaders Conference And in closing, I would like to invite you to join us at NRHC’s Industry Leaders Conference, the single-family rental home industry’s most important annual event. The event will be April 6-9, 2025, in Orlando, FL. Take advantage of the many opportunities to participate and hear from owner-operator executives and other experts in the SFR and BTR communities. Make valuable connections and network with your industry peers during a variety of engaging general sessions and be a part of the discussions on build-to-rent, housing policy initiatives, operational innovations, and advancements in technology.

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Texas House Committee on Business & Industry

Testimony Provided by: David Howard, National Rental Home Council by David Howard On September 12, as chief executive officer of the National Rental Home Council, I testified at a hearing of the Texas state legislature examining the impact of “institutional owners” on housing affordability in the state. I testified, in part, “Fundamentally, the expanding role of large {SFR} owners in the housing market is a direct response to the growing demand for new and innovative housing types that meet the diverse needs of today’s housing consumers, a response that is market driven and supported with private capital and private investment.” Here are some key excerpts of my testimony: “To help emphasize the important role the single-family rental home market plays in today’s housing economy, I’d like to talk briefly today about three things: context, affordability, and supply. First, it’s important to understand the context regarding the composition of the single-family rental housing market. Single-family rental homes account for approximately 14% of all the housing in the United States and roughly 40% of all the rental housing. Of the single-family rental homes in the country, the vast majority, somewhere between 85% and 90%, are owned by individuals and small local businesses. Large providers of single-family rental homes, so called “institutional owners,” account for just 3% of the market. More broadly, of all the housing in the United States, large providers of single-family rental homes own just 0.4%. To put this in perspective, this means 99.6% of the housing in this country is owned by someone other than a large provider. Finally, in terms of context, single-family rental homes play a vital role in the new home construction market, where between 10% and 15% of all new homes nationally are built expressly for the purpose of renting. In Texas, there are currently about 27,500 single-family rental homes under construction, compared to approximately 18,000 at this time last year. This investment in new home construction is a win for residents, a win for communities, and a win in the critical effort to build more housing. Turning now to the issue of housing affordability and the impact of large providers of single-family rental homes on pricing: simply stated, it’s hard to make the case that large owners of single-family rental homes have any impact on the cost of housing. There is ample research and data showing the connection between “institutional activity” and home prices just doesn’t exist. First, large owners aren’t buying with the volume and velocity that would impact local home prices; and it’s important to realize, large owners are not just buyers of homes, they are sellers as well. Second, home prices increase for a number of different reasons, most of which have nothing to do with the activities of single-family rental homeowners, large or small. Third, a 2021 market study by the National Association of Realtors found there was zero difference in the price paid by “institutions” than any other home buyer. And in a 2022 report, Freddie Mac found, “institutions heavily target under-market-value homes that need more repair than what most first-time homebuyers are willing to invest. Lastly, the real challenge facing the housing market today is lack of supply, both here in Texas and across the country, a situation particularly dire at the “affordable” end of the market. As an indication: in the 1970s, the United States routinely built over 400,000 starter homes every year. In 2020, we built 65,000. A recent report by Realtor.com estimated the United States needs 7.1 million new units of housing. We’re simply not building enough or investing enough to keep pace with demand. And the imbalance between supply and demand encompasses housing of all types — owner-occupied, multifamily, and single-family rental. Thank you again for allowing me to participate in today’s hearing.”

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New Actions to Lower Housing Costs

Cutting Red Tape to Build More Housing By David Howard Recently the Biden Administration proposed a number of actions and policy reforms designed to spur new housing development. The administration’s clear intent is to reduce and recast existing regulatory barriers that restrict or disincentivize the production of new housing, especially affordable housing. The actions announced are listed below with narrative explanations reprinted from a White House fact sheet. Making funding available to help communities break down barriers to housing The Department of Housing and Urban Development (HUD) is announcing the availability of $100 million through its landmark Pathways to Removing Obstacles to Housing (PRO Housing) program, which provides grants to communities to identify and remove barriers to affordable housing production and preservation. Providing interest rate predictability to spur housing development The Department of the Treasury and HUD are announcing a major improvement to the Federal Financing Bank (FFB) Multifamily Risk Sharing Program that would provide greater interest rate predictability for state and local housing finance agencies that finance housing projects through the FFB. This new action will provide housing finance agencies with greater certainty about the interest rate that they will face after the construction period ends, making more housing developments financially viable. Streamlining requirements for transit-oriented development projects The U.S. Department of Transportation (DOT) is announcing new guidance to streamline and clarify requirements for closing DOT loans for residential development near transit, including commercial-to-residential conversions. Accelerating historic preservation reviews for federal housing projects The Advisory Council on Historic Preservation (ACHP) proposed a new tool that would accelerate historic preservation reviews for millions of federally-funded, licensed, or owned housing units across the country. Challenging communities to use Section 108 to build housing HUD is launching a Legacy Challenge — encouraging communities that directly receive Community Development Block Grants to leverage low-cost, low interest loans for transformative housing investments. Enabling more housing types to be built under the HUD Code HUD anticipates finalizing a rule to update its Manufactured Home Construction and Safety Standards. In addition to making changes that will increase the quality, energy efficiency, and resilience of manufactured homes, the new rule, if finalized, would enable duplexes, triplexes, and fourplexes to be built under the HUD Code for the first time, extending the cost-saving benefits of manufactured housing to denser urban and suburban infill contexts. Expediting housing permitting Permitting requirements contribute to the nationwide housing shortage, leading many would-be deals to not be financially viable or be scaled down, and driving up the cost of housing. Reforms to streamline permitting processes can lead to more housing being built more quickly, which will lower housing costs. The NRHC Perspective With the cost of regulation accounting for nearly one-quarter of the total sales price of a newly-built home, efforts to reduce the administrative burden of building and developing housing can serve as an important step on the path to expanding the supply of new homes, a point the Administration emphasized in its comments announcing this week’s actions: “Building rental units and homes faster means lower costs for consumers: not only will more units get to the market faster, but increasing the speed of construction lowers building costs.” Through these actions, the administration has expanded on what has become a robust — and commendable — effort to support new housing development by reducing bureaucratic and costly red tape. However, while right-sizing the regulatory state is clearly a positive, the administration’s continuing attacks on “corporate landlords” and calls of support for national price controls on the rental housing market (i.e., rent control) are counterproductive to the larger objective of creating a stronger, more viable housing market for all.

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The Biden Rent Control Policy

Will Further Exacerbate Housing Development and the Investment Crisis By David Howard In response to President Biden’s call to implement a national rent control policy, this article articulates the viewpoint of the National Rental Home Council (NRHC), which represents the single-family rental housing industry. Not since the economic recession of the early 1970s has the federal government turned to price controls to regulate rents on a national level. However, rent control was a bad idea then, and it remains a bad idea today. There is broad-based agreement among economists and housing market experts that, in fact, America’s housing crisis is one of undersupply and disinvestment. We simply are not building enough new homes and investing enough in existing homes, a fact highlighted by Zillow in a June research report showing the American housing market faces a deficit of 4.5 million homes. This deepening housing deficit is the root cause of the housing affordability crisis. According to Orphe Divounguy, senior economist at Zillow, “The simple fact is there are not enough homes in this country, and that’s pushing homeownership out of reach for too many families. The affordability crisis extends to renters as well, with nearly half of renter households being cost burdened. Filling the housing shortage is the long-term answer to making housing more affordable. We are in a big hole, and it is going to take more than the status quo to dig ourselves out of it.” Price controls limiting rent increases will lead to an ongoing undersupply of new home development and further discourage much needed investment in housing. Under the President’s proposal, not only will the uncertainty created by an arbitrary limiting of rents — in this case 5% — negatively impact housing supply and investment, housing providers will also struggle just to cover the underlying costs associated with operating their properties. For example:  »             In 2023, property taxes on single-family rental homes increased 7% on average, and in some markets was considerably higher.  »             The average premium increase for homeownership insurance in 2023 was 11.3%.  »             Single-family rental housing owners participating in the National Rental Home Council’s first quarter 2024 Single-Family Rental Market Index (SFRMI) reported an annual increase in operating costs of 11%. Rather than turning to price controls and other regulatory barriers that constrain the ability of rental housing providers to do what they do best — provide more housing — NRHC encourages policymakers at all levels to work with the industry collaboratively to spur new development and housing investment. We believe this to be the most effective way to alleviate current and future housing supply challenges and to address the needs of residents, a sentiment shared by the White House’s own Domestic Policy Council Director, who stated in March of this year, “We know we need to increase housing supply to ensure that we can bring down the rents and the cost of homeownership.”  NRHC members are working diligently to provide leadership in an industry whose role has never been more important than it is today. That leadership is evident in the deep commitment members have demonstrated to the neighborhoods, communities, and most importantly, the residents they serve. There is a greater need for quality, affordably priced housing in the U.S. today than there has been in decades, and single-family rental home providers are an important part of the solution. By making long-term, innovative commitments to the communities in which we invest and build, single-family rental home providers — large and small — are providing a viable source of stabilized, enduring, single-family rental housing responsive to the needs and lifestyle preferences of today’s housing consumer.

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Four Myths About the Single-Family Rental Home Industry

Shedding Light on Reality By David Howard In recent years, the explosive growth of the single-family rental home market has attracted widespread attention from the public, the media, and policymakers alike. Landlords have rented out single-family homes for generations. But the recent professionalization of the industry has transformed the market. For decades, the overwhelming majority of rental homes were owned by landlords who hold a single property. While that’s still the case today, over the past decade or so, companies have emerged that own and operate portfolios of single-family rental homes. These companies have demonstrated that by owning a portfolio of homes, they can provide higher-quality customer and property management services that lead to an enhanced housing experience for all residents. The National Rental Home Council (NRHC) — the nonprofit trade association representing the single-family rental home industry — seeks to educate the public about the economic value and benefits of this dynamic industry. This fact sheet dispels some myths and sheds light on the reality of the market. MYTH #1: THE SFR INDUSTRY IS A PRODUCT OF THE GREAT RECESSION Reality // The SFR industry has been around for decades. In fact, there were more single-family rental homes, as a percentage of total rental housing stock, in 1999 near the height of the dot-com boom than in 2009, during the depths of the recession. It’s certainly true that SFR companies were active buyers of properties during the recession. But their presence brought much needed capital and liquidity to markets undergoing upheaval from bank-directed foreclosures, according to a report by the Federal Reserve Bank of Philadelphia. SFR companies also contributed to a recovery in home values without a significant impact on rental rates or eviction rates, and they supported local labor market conditions by increasing rates of employment in construction and home renovation businesses. MYTH #2: WALL STREET CONTROLS THE SFR INDUSTRY Reality // “Mom-and-pop” investors own 99% of single-family rentals. Institutional investors — including public sector pension funds, private equity firms, and other entities — own just 1%. Almost 90% of SFR investors own fewer than ten units. By contrast, institutional investors own 55% of multifamily rental units. Institutional investors occasionally hold investment positions in SFR companies, just as they do in other major sectors of the economy. The fact that they are drawn, in part, to the single-family rental home industry is a testament to the strength, vibrancy, and legitimacy of the market. MYTH #3: AMERICANS RENT BECAUSE THEY CAN’T AFFORD TO BUY Reality // More and more Americans are renting single-family homes by choice — and it’s easy to see why. SFRs offer families access to newly-renovated homes complete with a range of amenities, including good schools, parks and open spaces, shopping venues, and entertainment destinations. SFRs especially appeal to millennials, who are often focused on paying down student debt and do not want the commitment of buying a house. The median SFR costs just $1,600 a month. By comparison, the median down payment was $15,500 in 2018. SFRs cost less than apartments per square foot. The SFR industry also serves aging Americans hoping to downsize and move closer to their children and grandchildren without incurring the full costs of homeownership. MYTH #4: SFR LANDLORDS OFTEN SPIKE RENTS, PRICING FAMILIES OUT OF THEIR NEIGHBORHOODS Reality // SFR landlords, just like multifamily landlords, set rents based on market dynamics. If they overprice their units, tenants will simply go elsewhere. SFR landlords frequently perform extensive rehabs that make properties more attractive, which benefits tenants, nearby homeowners, and entire local communities. SFR companies have cumulatively poured $4.4 billion into home rehabs — an average of about $21,000 per house. These investments have supported more than 50,000 jobs and generated more than $300 million in local taxes and revenue. For additional information and resources, please visit NRHC online at www.rentalhomecouncil.org.

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States Pass ‘Anti-Squatter’ Legislation

Legislation Passed with Overwhelming Bipartisan Support By David Howard As the supply of new housing has struggled to keep pace with demand over the past decade, single-family rental housing has come to play an increasingly important role for families in search of quality, well-located housing. And with the surge in interest rates over the last year pushing the cost of housing to record highs, single-family rental homes provide residents with an affordably priced housing option that, on average, is over $1,000 less per month than the cost of homeownership. Yet, the single-family rental housing market has also not been immune from the effects of the supply constraints impacting the broader housing market. According to the Joint Center for Housing Studies at Harvard University, the number of single-family rental homes nationwide has declined each year since 2016. This decline has partly been offset by a notable increase in the number of single-family homes built expressly as rental properties. Known as build-to-rent housing, this innovative homebuilding platform provides families with a new home lifestyle, complete with sought-after community amenities, with the convenience, flexibility, and affordability of leasing. Housing Availability In today’s supply-constrained housing market, additional development and investment in housing is essential. However, it is just as important to make sure the current stock of housing remains accessible and available, whether ‘for sale’ or ‘for rent.’ One of the most urgent concerns regarding housing availability is trespassing, often referred to as “squatting.” Regardless of the term, the end result is the same — the illegal occupation of one’s property. NRHC became involved with the issue of illegal occupation in earnest in the summer and fall of 2023 when a marked increase in the number of incoming complaints from members led us to take action. We received data on markets where incidents of trespassing occurred most often. Priority markets included Atlanta, Georgia, where data showed 1,200 homes were occupied as a result of trespassing; Dallas/Fort Worth, Texas with 475; and Orange County, Florida, with 125. Illegal occupation for NRHC is not a political issue and it is not an issue of housing fairness or equity. Illegal occupation is about criminal activity. It is about someone who has entered a home and is occupying that home without a legal right to do so. For the property’s legitimate owner, the issue is about property rights, but it is about so much more. There are serious public safety issues at play here — Who is in the home? What is the risk to others in the neighborhood? Also, there is a real concern about the availability of affordably priced housing. Every incident of illegal occupation means there is one less home available for a family in need of quality, single-family rental housing. Responding to Illegal Occupation Many states and jurisdictions across the country had, or have, no accommodating legal framework to allow law enforcement and the courts system to respond adequately to incidents of illegal occupation. Often, property owners are left on their own to try to remove illegal occupants from their homes. Law enforcement often must decide whether an incident of illegal occupation is a civil or criminal matter, or who has proper legal documentation to support their claim of occupation or ownership. Courts are often not able to schedule hearings in a timely fashion to remedy incidents of illegal occupation. All of this leads to inaction, frustration, and in many cases, financial hardship for legitimate property owners. Several states have recently passed legislation to address incidents of illegal occupation. Over the past several weeks, Governors in Georgia, Florida, and Alabama signed bills providing property owners with an assured legal pathway for reclaiming their homes from trespassers. Legislation in these states have several common provisions:  »             They codify the act of trespassing into law  »             They provide a time-certain process requiring owners and occupants to disclose legal documentation attesting to their claims  »             They include preventative measures to ensure owners and occupants are truthful in disclosing that documentation  »             They provide the courts and law enforcement with more efficient means to respond to claims of illegal occupation Importantly, legislation in all three states passed with overwhelming — in some cases, unanimous — bipartisan support.

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