Realizing the Dream of Homeownership for a New Generation
Single-Family Rentals Are Part of the Solution to the Housing Crisis
by Doug Brien
Institutional investors have been crowding into the housing market, buying up homes at a record pace, with some $48.5 billion spent on almost 68,000 single family homes in the second quarter of this year alone, according to Redfin. That’s up from $38.9 billion in the quarter before, and $20.9 billion a year earlier.
Outlets from NBC News to Bloomberg have reported that the competition from Wall Street at
a large scale is driving up housing prices and crowding out families looking to purchase their first homes—many headed up by millennials.
We here at Mynd can empathize with would-be homeowners who are frustrated with the housing shortage in big cities across America. Every day, team members in the Bay Area share maddening stories about the battles they engage in to buy a home. One woman bid on three homes before beating out 10 other offers (contingencies waived). Another early-stage startup entrepreneur tried to buy his first home by making an offer of $500,000 above list on a $1 million home and lost the bidding war.
And it’s not just the Bay Area. One home in Puyallup, Washington, received 45 offers in February, the Seattle Times reported. A Mynd vice president based in Los Angeles reports bidding on homes that received 85 offers. Previously sleepy outposts like Bend, Oregon, and Coeur d’Alene, Idaho, have also seen demand skyrocket and prices follow. The median home sales price was $374,900 in the U.S. the second quarter of 2021, a 16.2% increase from a year ago, according to the Federal Reserve Bank of St. Louis.
These price hikes reflect the unbending law of supply and demand. Construction companies have underbuilt for decades, and the U.S. was some 3.8 million homes short of demand as of the fourth quarter of 2020, according to Freddie Mac. A report commissioned by the National Association of Realtors pegs the number at 6 million housing units dating back to 2001, caused by an “underbuilding gap.” Then there was the perfect storm in the last 18 months of spikes in lumber prices, supply chain issues for other materials, labor shortages, and a rush to buy in the suburbs as the pandemic made office life suddenly seem anachronistic.
Do Not Blame Institutional Investing
But while some parts of the U.S. are undoubtedly experiencing a housing shortage, the data does not support institutional investing in single family homes as the root cause. The truth is that less than two percent of homes in America are owned by institutional investors, though that share is likely to grow in the coming years. (By contrast, some 55 percent of multi-
family homes are owned by institutions.)
And institutional investment in single family homes is not a recent development. My former company, Waypoint Homes, bought up distressed single family homes during the peak of the financial crisis in 2008. Other large companies bought as well. Blackstone Group, through its then-subsidiary Invitation Homes, spent $7.5 billion to buy 40,000 mostly foreclosed homes in 2013. The Atlantic reported that some of the world’s largest private-equity groups and hedge funds spent a combined $36 billion between 2011 and 2017 on more than 200,000 homes in markets across the country.
The single-family rental market has been the fastest growing segment of the single family housing market in the last decade, according to the National Rental Home Council, but large SFR companies own only about 0.2 percent of the country’s residential real estate, and no more than 1 percent of the homes in any state.
Some states will continue to struggle to meet housing demand, especially places like California, where the regulatory environment and strong local opposition are barriers to development. (And home prices will reflect that; the median home sales price was $819,630 in June.)
Investing Remotely
The good news is that would-be investors in areas with a high cost of living can now buy in parts of the country that are more affordable, allowing these folks to participate in America’s greatest vehicle for creating generational wealth: real estate. My current company, Mynd, offers an all-in-one platform for investors to find, purchase, rent, manage, and sell SFR properties, while fully remote.
The ability to invest remotely empowers individual investors who no longer have to look for properties that are within driving distance of their homes. People living in coastal cities with high home prices can now search for affordable properties in different parts of the country. Some millennials may find that their starter home will turn out to be a rental because the entry price is too high, and the single-family rental market will be one of the solutions to the housing shortage.
Turning real estate into a portable asset class is a challenge, but much the way that online trading platforms like Charles Schwab and E-Trade made investing in the stock market more accessible (and then offered trades for free), proptech firms are making it feasible. The widespread availability of cloud computing and artificial intelligence, applied to ever larger data sets, enables investors to make better decisions.
Not Everyone Needs (Or Wants) A House
The benefits of renting are not to be overlooked: renters avoid the significant closing costs associated with buying, and rentals afford people more mobility to adjust to the changing job market. Studies show that those paying off a mortgage are less likely to start a business, discouraging budding entrepreneurs from taking risks. Not everyone wants to, or needs to, buy a house. Mynd and others in the single-family rental space are dedicated to putting more high-quality, well-managed rental properties on the market to meet this demand, as Americans migrate to where the opportunities are.
Managing real estate goes beyond an investor’s return. The feeling of a home is very different from a house, and our team is taught that they need to communicate and empathize with residents. And every member of our team is encouraged and coached on how to prosper through real estate investing—and is thus equipped to help clients execute the same strategies.
The Covid-19 pandemic has irrevocably altered how we relate to the “office” and freed up many from being tied to a certain place to earn a living. A new generation is taking advantage of the flexibility and mobility that comes with renting, as proximity to a company’s headquarters has become less crucial to their careers. This trend is likely to continue as millennials and Gen Z navigate a very different post-COVID world—and usher in a new era of homeownership, one where some real estate investors rent an apartment in a city and buy in another place, renting out that property with an eye to moving there one day.
The housing crisis has many causes, among them restrictive zoning laws, Nimbyism (not in my backyard), underbuilding, rising costs of materials, labor shortages, and poor policy choices on both the local and federal level. It will take a concerted effort on the part of both the private sector and the government to solve it.
What’s clear is that rental homes, and the ability for people to invest in properties remotely to build wealth, will be part of the solution. The combination of technological know-how and a highly trained workforce can turn single-family rental houses into the homes that Americans are longing for.
