The Single-Family Rental Home Industry Has Never Been More Important
Sound Government Policies Are Needed to Create Favorable Market Conditions
By David Howard
As members of the National Rental Home Council (NRHC) prepare to gather in Nashville this month for the annual SFR Industry Leaders Conference, intensifying headwinds continue to swirl around the global economy. Rising interest rates, a weight on the housing market for the better part of the past year, have now started to curtail growth across a wider swath of the economy.
Most concerning perhaps is the impact of higher rates on the stability of the banking sector, with a number of recent high-profile bank failures sparking concerns for the overall health of both U.S. and global financial markets. All of this is playing out amidst the backdrop of slowing economic growth that many forecasters claim is an indication of more difficult times ahead.
Given the current landscape, the role of the rental housing market, and single-family rental housing in particular, has arguably never been more important than it is today. Demand for housing, even in a rising rate environment, remains solid, with both home price and rental rate appreciation showing positive growth. Admittedly, this growth is down from the historically high levels of the past year, but it remains positive nonetheless.
Housing supply, on the other hand, continues to be a challenge. A recent report by Realtor.com showed the gap between new home construction and household formation increased to 6.5 million units between 2012 and 2022.
The Supply and Demand Dilemma
On its own, the mismatch between supply and demand would be enough of a challenge for anyone considering a home purchase. However, with interest rates on the rise, the cost to finance a home today adds another layer of complexity for consumers in the market for a potential home purchase. According to research from John Burns Real Estate Consulting, the average cost of a monthly payment to rent a single-family home is now $850 less than the cost to own a single-family home, the biggest difference in cost since the year 2000.
All of this is a way of saying, America needs more housing, of all kinds — owner-occupied and rental. The most visible consequence of a housing market burdened by ongoing supply challenges is, quite simply, there are fewer options available to meet the needs of Americans in search of quality housing. More broadly, underproduction acts as a clear, and concerning, drag on homeownership and owner-occupied housing. However, supply shortages are felt throughout the housing ecosystem, impacting virtually every sector of the market, including single-family rental homes.
The single-family rental home industry has historically accounted for approximately 40% of America’s rental housing market, providing access to quality, affordably priced housing for more than 16 million households in neighborhoods with proximity to schools, employment centers, and transportation corridors. Providers of single-family rental homes — large and small — play a critical role in offering families and individuals a greater range of housing options, at a time when it is most needed. According to Harvard University’s Joint Center for Housing Studies, the number of renter households increased by 870,000 during the COVID pandemic. The Joint Center’s report, America’s Rental Housing 2022, identified five reasons for the surge in rental housing:
» Large number of millennials moving through their 20s and 30s: ages where renting is most common;
» Rapid growth of older renters: baby boomers aging into their 60s and 70s;
» Sharp rise in rentership between 2009 and 2019 for younger and middle-aged households: signaling delayed transitions to homeownership;
» The growing popularity of renting among older households: contributing to increases in both the number and share of higher-income renters;
» The increasing diversity of U.S. households: lifting demand for rental housing.
While these factors were likely present before the COVID health crisis, there’s no question the pandemic contributed to a rise in demand for single-family rental homes. According to the NRHC/John Burns Real Estate Consulting Single-Family Rental Market Index (SFRMI) report from the third quarter of 2020, nearly 60% of new single-family rental home residents relocated from urban multifamily properties. With a greater share of the American workforce spending more time working from home, either permanently or part-time, the desire for extra space has also contributed to the demand for single-family rental homes, 65% of which contain three or more bedrooms (compared to just 11% of multifamily units).
Finally, there is the great migration: in 2020, one in 10 Americans moved to a new market.
Meeting the Challenge
For these reasons, there is arguably a greater need for single-family rental housing in the U.S. than there has been in decades. However, data show ongoing housing supply pressure has challenged the ability of the single-family rental home market to meet that demand. An analysis of housing data from the Annual Social Economic Supplement of the Current Population Survey, published by the U.S. Census Bureau, reveals even though demand for single-family rental homes increased during the decade 2011–2021, the share of single-family rental homes within both the single-family and rental housing markets declined.
To meet the need for single-family rental housing, NRHC members are investing in local staff, hiring local contractors and business partners, and bringing property management expertise to local markets all to ensure a positive experience for residents and families who choose a single-family rental home lifestyle. As evidence, in 2021 NRHC members invested nearly $2 billion in home renovations, upgrades, and other property-level operations while employing more than 8,000 local businesses and contractors in markets across the country. Additionally, many NRHC members support residents on their path toward homeownership by reporting on-time rent payments to credit agencies and providing access to financial literacy programs.
The ongoing development and maturation of the single-family rental home industry is focused on providing a viable source of stabilized long-term rental housing responsive to the needs and lifestyle preferences of today’s housing consumer. To the extent that we are able to provide more housing, we are better positioned to meet those needs. Perhaps the most direct indication of the industry’s efforts to provide more housing is through the building of new single-family rental homes. Companies are building homes for rent, either in partnership with established local and national homebuilders, or on their own account, all with an aim of spurring new development and investment and providing more options for homeowners and renters.
Across the country, as of the end of January 2023, there were over 100,000 new single-family rental homes under construction and in various stages of planning.
Sound Government Policies Are Needed
While industry must continue to do its part, government policies also have an important role to play in incentivizing and encouraging new housing development and investment. Sound policies, at the federal, state, and local levels, are needed to create the conditions under which new building and investment is possible. Yet, in too many instances, policy-making has made it more difficult for housing to prosper.
Too often, single-family rental home providers, large and small, are mischaracterized as “institutional”, “out of town”, and “out of touch” landlords and are not viewed as part of the solution to the challenges of today’s housing market. Single-family rental home companies should not be viewed as ‘investors’ but rather as housing providers. The business of single-family rental housing is not about ‘buy low—sell high’ investing, it’s not about ‘flipping’, and it’s not a trade. This is an operating business requiring resident, property, and portfolio management expertise.
Like most modern industry sectors, single-family rental housing operates on a platform dependent on fully integrated technology and servicing capabilities. Scale makes the business work, and scale is only possible through automation and innovation. To the single-family rental home mindset, investing is not buying a home and waiting for it to appreciate; instead, investing means continuously upgrading and improving the property experience to enhance long-term resident experience.
Rather than additional oversight initiatives and 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 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. Additionally, expanded regulatory and oversight measures are especially concerning for the individuals and small local businesses who collectively account for over 90% of the market for single-family rental homes.
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 US 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.
