From the Hill

Four Myths About the Single-Family Rental Home Industry

by David Howard
Comment Off
211 views

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.

States Pass ‘Anti-Squatter’ Legislation

by David Howard
Comment Off
104 views

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.

California’s Quest to Push Housing Even Further Out of Reach

by David Howard
Comment Off
145 views

Renting Must be Part of the Solution By David Howard Make no mistake: It is a difficult time for homebuyers right now, and California stands out as one of the nation’s toughest states to buy a home. It’s not just that home prices are hitting an all-time high, and that California features some of the least affordable housing markets in the country. High interest rates mean that even families that have enough for a down payment will be left with expensive, budget-busting mortgage payments. Experts are declaring right now as ‘the worst time to buy a home.’ Millennials in California have growing families, and they are going to need more housing options — not less. But even as many families are locked out of buying a home, California policymakers are pushing for new laws that would also make it harder for them to find places to rent. Renting must be part of the solution. Daunting Numbers To keep up with its growing population, California needs to build 180,000 homes per year. However, over the last decade, it’s averaged less than 80,000 new homes per year. On top of this, California has less land available for development, meaning a variety of housing solutions are needed including multifamily and single-family rental properties. Across California, it is cheaper to rent than to buy. For young professionals and growing families, renting likely makes more sense from both a financial and a convenience perspective. Renting can save tens of thousands of dollars throughout a year in California where on average, the difference between renting and buying a home is $803 per month — not including insurance, taxes, and other homeownership expenses. By some estimates, California renters could save $112,000 or more over five years given the cost difference to rent versus buy. For higher cost of living areas like Los Angeles, San Jose and San Franciso the difference can be even greater. For decades, renting has been synonymous with apartment buildings. The truth is many growing families need more space, but the only pathway to renting a single-family home is dealing with mom-and-pop owners who may not be great caretakers. Today, housing providers are offering a new solution to California families: professionally-managed single-family homes in desirable neighborhoods where families can be close to their jobs and good schools. These companies make upfront investments to renovate homes; they stay in touch with residents through apps, and they employ teams of on-the-ground maintenance staff who can quickly respond for repairs. Companies also offer high quality amenities and features that are not typically available for a first-time home buyer. Families who rent with these housing providers are finding the right home that meets their needs, circumstances, and budget. For potential critics, it’s important to point out that single-family rental housing has no impact on the supply or cost of housing, a fact backed by research from the Philadelphia Federal Reserve and the University of Southern California. Additionally, research from the Urban Institute has found that roughly 574,000 single-family homes are owned by large companies or investors — just about 1% of the more than 46.6 million total rental properties available nationwide. AB 2584 and SB 1212 So, why are some California legislators doing their very best to limit single-family rental housing? AB 2584 and SB 1212 propose burdensome regulations to the housing market that are both anti-renter and anti-housing. By scapegoating single-family rental housing providers, it ignores the root causes for housing market issues in California and threatens to remove a vital housing option for those living in or interested in moving to the state. Despite the highly beneficial nature of single-family rentals, California is losing ground on this critical housing solution. Between 2017 and 2022, the number of single-family rentals dropped by 81,548 units, according to Census data. When combined with the prospect of proposed regulations, the result would exacerbate, not improve the housing situation in the state — limiting investment in rental properties and stifling new housing construction. Legislators should be laser-focused on making housing as accessible as possible, encouraging policies that make it easier to buy and easier to rent. Californians need access to more single-family homes, especially in growing and high-demand communities.

Invigorating America’s Housing Market

by David Howard
Comment Off
329 views

Some Proposals for Consideration By David Howard This year’s State of the Union address featured a number of proposals designed to invigorate America’s housing market. Most notable among the proposals: » A two-year mortgage relief credit of up to $10,000 for first-time homebuyers » A one-year tax credit of up to $10,000 for homeowners who sell a starter home to owner-occupants » Up to $25,000 in downpayment assistance for first-time homebuyers » An expansion of the Housing Choice Voucher program for low-income renter households » An expansion of the Low-Income Housing Tax Credit enabling the construction of more units of affordable rental housing While the Administration deserves credit for its efforts to offer a real and constructive path forward to address the challenges facing America’s housing market, the political environment presents a high hurdle for any of the proposals to become law. Although the Administration is clearly attempting to strike a balance between the supply and demand sides of the housing equation, much of the emphasis is on the latter. So, in the interest of putting forth policy ideas that have the potential to drive housing development and investment, and in the process support SFR renters, owners, and builders, following are proposals for consideration: Allow the GSEs to Participate Fully in SFR Financing Activities Currently, Government Sponsored Enterprises (GSEs), primarily Fannie Mae and Freddie Mac, are restricted by their regulator, the Federal Housing Finance Agency (FHFA), from providing financing for owners of more than 10 one-to-four-unit investment properties. Placing an arbitrary restriction on who can and cannot access a preferred source of capital makes for bad policy. FHFA’s restriction only applies to SFR owners while allowing unfettered access to multifamily owners, regardless of size. Given the GSEs are charged with providing “liquidity, stability, and affordability” to the U.S. housing market it makes little economic — or intellectual — sense to exclude SFR owners merely because they are deemed to be “large.” At the very least, parity between the SFR and multifamily markets ensures the GSEs are better able to serve a broader, more diverse, universe of renter households and families. Expand the Use of the Low-Income Housing Tax Credit to the SFR Market Currently, the Low-Income Housing Tax Credit (LIHTC), exists almost entirely to enable the production of multifamily units, even though single-family rental homes of between one and four units account for nearly 40% of the nation’s rental housing. LIHTC provisions are notoriously complex, especially so for owners and developers of single-family rental housing. Adapting LIHTC to the needs of the SFR market could be an effective way to expand the stock of much-needed affordable rental housing. Make Workforce Housing More Attainable by Supporting Build-to-Rent Development and Investment Build-to-Rent (BTR) single-family housing is ideally suited to meet the workforce housing and economic development needs of communities large and small. BTR housing is often designed to attract residents with a need for more space than can typically be found in a standard multifamily building. But because workforce housing by definition is not “affordable housing,” policy incentives to spur development and investment are more limited. Making tax credits available for BTR projects can serve a useful purpose in expanding the stock of quality, well-located, BTR single-family workforce housing. Incentivize SFR Owners and Developers to Embrace ‘Green Building’ Practices Residential energy use accounts for approximately 20% of greenhouse gas emissions in the United States. With nearly 20 million single-family rental homes throughout the country, the opportunity for environmental and energy policy is substantial. Expanding the use of targeted tax credits and other tools to encourage the participation of SFR owners can likely have an immediate and lasting benefit. Promote Homeownership through Lease-to-Own Programs Single-family rental housing can serve as an important step on the path to homeownership. Government policy can play an important role in facilitating the transition to homeownership by offering tax credits and other incentives to encourage formal lease-to-own agreements between residents and SFR owners.

It’s Time to Stop Vilifying Rental Housing Providers…

by David Howard
Comment Off
244 views

…. For Providing Rental Housing By David Howard A new bill introduced in January 2024 in the U.S. Senate levies an onerous new tax on owners of single-family rental homes for no other reason than they are deemed “institutional” and therefore somehow a threat to America’s housing market. The “Affordable Housing and Homeowner Protection Act,” introduced by Senators Jack Reed (D-RI), Tina Smith (D-MN), and Tammy Baldwin (D-WI) forces anyone owning 15 or more single-family rental homes to pay a tax on all new acquisitions according to the following schedule: 15-25 SFR Homes Owned » 1% Tax on New Acquisitions 25-100 SFR Homes Owned » 3% on New Acquisitions 101+ SFR Homes Owned » 5% Tax on New Acquisitions As an example, a provider owning 50 single-family rental homes who purchases a property costing $300,000 would owe a tax of $9,000. And why is this bill needed? According to Senator Smith, the bill “would hold the corporate investors accountable who take advantage of our country’s housing shortage at the expense of working families.” SFR Homes are Essential to the Housing Economy However, unlike Senator Smith, the National Rental Home Council does not believe providers owning 15 or more homes are responsible for America’s housing crisis. In fact, we believe single-family rental homes are an essential part of America’s housing economy, providing access to quality, affordably-priced homes ideally suited to accommodate the diverse lifestyle needs and financial realities of millions of Americans and their families. In a housing market defined by an historic undersupply of homes and continuing affordability concerns driven by decades-high mortgage rates, single-family rental homes are a part of the solution for making housing more accessible. Rather than recognizing the important contributions owners and builders of single-family rental homes provide to residents, their families, and local neighborhoods, the industry is often mischaracterized and even criticized by the media, policymakers, and housing advocacy organizations. Instead of supporting the rights of property owners and commending the industry for providing communities with a source of long-term, stabilized single-family rental housing, these critics have put owners on the defensive, and worse, have called for legislation and regulation harmful to the industry. In this column last month, I highlighted a new report from the Urban Institute — “Place the Blame Where It Belongs”— detailing the extent of the housing supply crisis in the United States. The report further identifies a number of common “scapegoats,” including institutional investors, often cited as contributing to the country’s housing challenges. In discussing the role of investors in the housing market, the report states, “Investors do not constitute an independent source of demand and do not take houses off the market,” and “it is hard to argue that institutional rental operators drive up home prices over any reasonable period. Moreover, it is possible that through economies of scale, institutional investors make renting cheaper, changing consumers’ rent-versus-own calculations.” As the Urban Institute report makes clear, yet what is often misunderstood (or ignored) by those critical of housing providers, is the extent to which supply constraints impact all housing types — owner-occupied, multifamily, and single-family rental. More investment in housing generally is good for all housing. And while there are clear benefits to policies intended to expand homeownership, the data show there is as much a need to encourage additional investment in rental housing as well. According to Census Bureau data released in February measuring the inventory of housing in the U.S., the amount of owner-occupied housing has grown almost 9% over the past five years while the amount of rental housing has grown by just over 4%. Taking a longer-term perspective, the share of the country’s housing market accounted for by rental housing is less today (30.8%) than it was 50 years ago (32.5%). A persistent shortage of homes throughout the country continues to drive the cost of housing higher, emphasizing the importance of flexibility and choice for families in search of quality, affordably-priced housing. To address this shortage, we need policies that encourage and incentivize the development and investment in all types of housing, not punitive legislation targeting housing providers.

Build Baby Build

by David Howard
Comment Off
491 views

The Case for Legislation That Encourages and Incentivizes New Investment and Development in Housing By David Howard America’s housing market has a problem – we are not producing enough homes. Just consider the following: » In 1970, America built 420,000 “starter” homes; in 2020 we built just 65,000. » Fannie Mae has reported there were fewer homes built in the U.S. in the 10-year period ending in 2018 than in any decade since the 1960s. » The Washington, DC nonprofit, Up for Growth, has shown the amount of housing underproduction in the U.S. increased to 3.79 million units in 2019 from 1.65 million units in 2012. » Realtor.com calculated that the gap between single-family home construction and household formation grew to 6.5 million between 2012 and 2022. As a result, the cost of housing keeps increasing. In October of 2023 the S&P Case Shiller Home Price Index reached an all-time high of 312.95, rising more than 50% over the las five years and almost 100% over the last ten years. The result? More Americans are at risk of being priced out of the housing market. According to the National Association of Home Builders, 96.5 million American households are unable to afford a median priced new home. And, with every $1,000 increase in the cost of a median priced new home, an additional 140,000 households are priced out of the market. While some may say rising interest rates are to blame — a factor that undoubtedly makes financing a home less appealing and more expensive — it does not explain the continuing rise in home prices. Historically, one would expect rising rates to be offset to some degree by a decline, or at least a moderation, in home prices. However, that has not been the case. During the rising rate environment of the past 18 months, home prices have not declined, but in fact, have increased. While it is certainly true that America’s housing market is influenced by a wide variety of factors, one of the chief reasons home prices have continued to increase is because we are not building enough homes. As we all learned in Economics 101, strong demand coupled with low supply means higher prices. The concern over housing supply is the subject of a new report by the Urban Institute, a Washington, DC research and policy nonprofit focused on issues of upward mobility and equity. The report, titled “Place the Blame Where It Belongs,” examines the high cost of housing in the U.S. and cites a lack of supply as the principal cause. In the report, the Urban Institute also dispels many of the myths and inaccuracies — including the role of housing investors — commonly used to distract attention from the true underlying causes of the housing market supply/demand dynamic. Key takeaways from the report include: » “A massive supply shortage is causing high home prices and rents, and the way to fix it is to build more housing (and rehabilitate existing house where economical).” » “It is important to begin with the basic fact that high home prices and rents are the result of the housing supply shortage, caused by more robust household formation relative to increases in the housing stock.” » “Regardless of whether investors are institutional or mom-and-pop, and regardless of whether investors buy single-family or multifamily properties, the driving cause is that there is more demand than supply, and some of that demand is demand for rental property.” From a policy perspective the solution is simple: create legislation that encourages and incentivizes new investment and development in housing, a point also brought out in the Urban Institute report: » “Policy interventions to make housing more affordable for all households must simultaneously 1) make more supply available, and 2) provide adequate subsidies such that lower-income households can afford a place to live.” » “The federal government must specify a housing supply policy that prioritizes the most cost-effective ways of increasing supply.” Until we start to produce more housing, consistently, we will continue to suffer the consequences of high home prices.