The National Rental Home Council
Much More Than “Just An Investment”
By Carole VanSickle Ellis
In February 2012, Warren Buffett, chairman and CEO of Berkshire Hathaway and famed “Oracle of Omaha,” sent the single-family residential world into a tailspin when he observed during an interview on CNBC’s “Squawk Box” that he would “buy up a couple hundred thousand” single-family homes if he could see a practical way to do so. Citing the need for an “enormous” management infrastructure as the reason he would not actually take the single-family rental plunge, Buffett continued, “I would load up on them,” and concluded, “If I was an investor that was a handy type…I could buy a couple [single-family homes] at distressed prices and find renters…I think that’s probably as an attractive an investment as you can make now.”
Although Buffett held true to his word and stuck with investments in REITs (real estate investment trusts) instead of rentals, the rest of the real estate investing world, including a number of institutional investors and Wall Street firms, listened closely and took action.
Today, little more than a decade after that fateful interview, institutionally owned single-family rentals (SFRs) play an outsized role in the housing market despite accounting for less than 2% of the overall market. Some media outlets and industry outsiders may portray institutional rental owners as a threat to other elements of the SFR industry, but David Howard, CEO of the National Rental Home Council (NRHC), believes that the industry benefits when everyone, from the behemoths to individual owners, works together.
This is the message he delivers daily in Washington, D.C., and around the country as he works tirelessly on half of the council and the SFR industry.
“Members of the NRHC come in all shapes and sizes, from large, national companies to small, local businesses to individual owners and everything in between,” Howard said. “Much of what we do at NRHC involves educating and informing policymakers about the critical role the [SFR] industry plays in the broader housing economy,” he continued.
NRHC membership also includes SFR service providers, build-to-rent developers, and a vast array of business partners in the industry as well. Howard says that because the industry is new and often misunderstood, it is essential that SFR owners and partners have advocates in Washington, D.C., and elsewhere.
“A lot of my job is walking the halls of Congressional buildings,” he noted. “NRHC serves as an advocate for the entire industry.”
“There has been a perfect storm that has facilitated the growth of the rental housing space and, more particularly, the single-family rental sector,” said Mahesh Shetty, CEO of ILE Homes. “The space is still very fragmented, but there is a very positive long-term outlook because all of the forces — the demographic trends, the macro trends, appreciation — all lend themselves to growth in this particular sector. Shetty added he expects the SFR industry and institutional owners to emerge and become even more important to the housing economy as interest rates continue to rise from recent historic lows.
“The path to the future is inclined toward companies that are operators, who can manage effectively while taking care of customers, and that are effective in creating value for investors,” he said.
NRHC considers its role in this growth process to help owners operating at all scales to provide SFR-related solutions to “a housing market challenged by a stark undersupply of homes and continuing affordability concerns.” Howard, himself, describes the council’s primary purpose as “addressing the housing supply crisis by investing in communities and neighborhoods to support a housing market that can meet the needs of all Americans and their families.”
This goal, which tops the list of the NRHC’s policy platform key points, is supported by efforts to “enhance the diversity of housing opportunities,” and “advocating for common-sense legislation governing housing development.” Howard noted a crucial component in reducing inventory-related market tensions will be the creation of policies at all levels of government regulation that will enable builders to “do what they do best” without preventing development of owner-occupied and rental housing or creating capital bottlenecks that interfere with the flow of funding for local residential projects.
Not Just About Investors & Landlords: Residents Take Top Priority
One of the elements of NRHC that sets the organization apart, Howard said, is the council’s prioritization of residents’ quality of life and community involvement. This is not just philanthropy; it is also good business.
“We believe all Americans should be supported by policies that provide access to quality housing, no matter where they are on the continuum of renting or owning,” Howard said. “They deserve the same commitment from policymakers that homeowners are afforded, and our members encourage residents to be good citizens and active, involved members of the community.”
Statistically, this kind of business practice benefits the entire community as SFR companies cumulatively pour more than $4 billion into home rehabs, create roughly 50,000 related jobs, and generate more than $300 million in local taxes and revenue each year.
Historically, renters and their landlord have often been marginalized by their communities. Often, single-family rental properties have been seen as “a bet against homeownership,” Howard explained. “In reality, SFR assets are an important piece of a vibrant housing market and a steppingstone to homeownership,” he concluded.
NRHC member Dana Sprong, co-founder and managing partner of Vinebrook Homes, has a mission for his company that intersects with these aspects of NRHC perfectly: providing affordable workforce housing.
“We are really the only large SFR company with a singular focus on acquiring, rehabilitating, and leasing affordable workforce housing,” Sprong said. “Our goal has always been to provide hardworking folks with the opportunity to create their own version of the American Dream: access to clean, safe, affordable homes that can be leased or serve as a steppingstone to a home purchase.”
Sprong explained that many of today’s rental residents find there are advantages in addition to affordability when it comes to renting a single-family home. “For starters, you have the ability to have more space, more privacy, have a yard, not share walls, have a pet, and not have to deal with repairs and maintenance,” Sprong said. He continued, saying of VineBrook, “With average rents of about $1,200 per month, we are well below average market rents in the areas in which we operate, and that means we are providing folks with access to housing they might not otherwise have and the opportunity to accumulate savings and discretionary income that can be used for healthcare, education, starting a business, or saving to buy a home.”
“SFR assets improve the housing stock,” said Jay Byce, co-founder of build-to-rent developer ResiBuilt. Byce, who started the company in 2018, believes build-to-rent communities are the next phase for the single-family rental industry because this type of housing is, ultimately, the asset class that shores up economic volatility on an national level.
“Before 2018, the SFR industry was mainly about renovating existing houses so they were better homes for tenants. That is what created the floor in the market after the housing crash in 2008,” he said. “By extension, SFR improved the housing stock and, today, the build-to-rent community provides new housing supply to a market that is incredibly tight and underserved.”
Byce noted many people outside the industry misinterpret SFR investors and believe they limit residents’ ability to buy a home. “It is actually the exact opposite,” he said. “We are adding more new homes to the market than for-sale builders have the ability to financially provide. That improves housing supply whether you are renting or buying.”
“We are in a business that is more than just the owning and operating of rental homes,” Howard said. “Housing touches on every aspect of people’s lives and is central to creating strong communities and vibrant neighborhoods. As an industry of rental housing providers, we all know there is nothing more important than home and are focused on creating the best homes we possibly can.”
Keeping an Eye on the Future of the Asset Class
As 2023 draws to a close, the biggest issue facing the SFR industry is the same issue that is facing every resident and homeowner today: the housing supply. “There simply is not enough housing of all types – owner-occupied or rental,” Howard warned. “Over the years, we have not done enough in this country to support the supply of housing, to encourage new development and investment, and to facilitate the creation of more and new housing.”
Byce agreed. He explained, “After the financial crisis [in 2008], builders moved up in price point across the board. Instead of building $200,000 or $300,000 homes, they started building $700,000 and $800,000 homes at a much slower pace because that was the demographic of the population that could afford to buy homes at that time. For the next 10 years, few to no builders were focused on entry-level housing.”
Byce observed that since 2018, builders have also been extremely wary of “spec” inventory, or homes that are built before there is a buyer for them. This development timidity, he said, was one of the major factors in price acceleration during and after the COVID-19 pandemic. Byce argues that SFR assets are one of the few things preventing home prices from spiraling further out of control. He said at ResiBuild the company is able to lease new homes at a much faster rate than the same homes could be sold, which enables the company to get more housing stock into the market than a traditional new-construction, retail builder. Byce said this is one way that SFR companies and investors can participate in the burgeoning market and also help make meaningful improvements in many people’s lives.
Moving forward, most SFR operators and investors agree that there is still a great deal of space in the industry for both big and small companies, but that the advantage is increasingly going to go to investors who are able to generate returns through efficiency as well as forcing appreciation of the physical assets themselves. “What will make companies — big or small — stand apart from the rest is their ability to focus on the day-to-day operations, the details, and the driving efficiency of the organization,” said Shetty. He concluded, “You can only do that if you have a strong foundation, are customer-focused, and accept your responsibility as a good corporate citizen to deliver safe, family-centric, affordable homes to the average consumer.”
Sprong added, “The value proposition does not really change when your business model is to take care of the homes and the people who live in them. It becomes a virtuous cycle wherein an SFR operator can continue to grow, to improve, to serve those residents, to function as stewards of the assets, and ultimately serve the communities in which we operate.
SIDEBAR 1
SFR by the Numbers
870,000 – number by which the volume of rental households has increased since the beginning of the COVID-19 pandemic
420,000 — number of entry-level homes built annually during the 1970s
65,000 – number of entry-level homes build in the United States in 2020
2% – percentage by which rental housing inventory in the United States has increased over the last five years
3,800,000 – housing stock deficit in the U.S. in 2020
SIDEBAR 2
So Much More Than “Just” Rental Homes
When David Howard, CEO of the National Rental Home Council (NRHC), says “single-family rental (SFR) housing,” he wants to make sure you know what he means.
“It all starts with the recognition that we are in a business that is so much more than just the owning and operating of rental homes,” Howard explained. “Housing touches on every aspect of people’s lives and is central to creating strong communities and vibrant neighborhoods. This is a business about creating a home, and there is nothing more important than home.”
Howard, who has been CEO of NRHC for just over four years, has spent much of that time advocating on behalf of rental-housing owners and operators while working from inside the industry to standardize best practices and enhance resident experience.
“As an industry of rental housing providers, we need to be focused on creating the best homes we possibly can,” he said. “NRHC members understand this and have put management and operating practices in place to ensure they are delivering the best experiences for their residents.” Howard noted NRHC’s best practices and standards are constantly evolving as members bring new insights and experiences to the table.
“We can only do this work effectively to the extent that owners and operators are active and involved,” he said. “My ask to everyone is to consider joining NRHC and participating in this sharing of industry information.”
Howard said that in the last four years alone, perceptions around the SFR industry have changed dramatically. “SFR housing historically has been viewed by many as simply an ‘investment,’ but we are moving away from that with good reason,” he said.
Because SFR homes are among the most reliable and stable types of rental housing, access to this asset class provides more diversity in housing choices for residents as well as investors. As the housing market continues to experience extremely tight supply, SFR assets that are professionally managed and leverage technology in property operations are almost certain to increase in value and appeal to both investors and residents.
“This will undoubtedly serve to bring about further innovation and evolution [in the industry],” Howard concluded. “10 years from now when we take stock of how far the industry has come, we will be amazed at where we find ourselves not just in terms of growth, but also in terms of professionalism and transparency. I expect all of this to lead to a broad recognition and acceptance of single-family rental housing as a core component of America’s housing ecosystem.”
Learn more about the National Rental Home Council at RentalHomeCouncil.org.
