It’s no surprise the rental market is hot, Americans have been living in rental properties for a long time and that number soared to 37% since 1965. Industry experts say the current economic climate has created a perfect storm for the single-family rental market’s success. Student debt, a tight job market, and the inability to save for a down payment have kept a number of potential home buyers out of the market.
The rental market is hot. Since the start of the Great Recession, the number of Americans living in rental properties has soared to nearly 37%, the largest amount since 1965. Over the same period, households lived in by owners are at an all-time low, according to Census Bureau data.
One sector of rental housing has enjoyed a particularly dramatic rise. Single-family for rent is the fastest-growing segment of the U.S. housing market, according to an analysis by the Urban Institute, which reports that growth in single-family rentals has outpaced the growth of both single-family for sale and multifamily housing in recent years—and it is predicted to keep growing in the years ahead.
The demand for single-family rentals is undeniable, and it presents myriad opportunities for builders across the country. The growth in this segment has paved the way for builders to increase sales by selling to rental operators on a wholesale basis, and prompted a number of developers to tap into the market with a new product: cohesive single-family rental communities filled by niche renters with lifestyle needs that are unlike those of apartment renters.
Industry experts say the current economic climate has created a perfect storm for the single-family rental market’s success. Student debt, a tight job market, and the inability to save for a down payment have kept a number of potential home buyers out of the market.
“Credit markets are still extremely tight, and a lot of people don’t have the right credit score. With stricter lending terms than ever, some consumers are not even potential participants in the market,” says Dennis Cisterna, CEO of Investability Solutions, a real estate investment firm in the single-family rental space. “[These factors] are eliminating people from homeownership. Without more alternative solutions to getting people into homeownership, whether that is a low–down payment mortgage or assistance programs, there will be a ramp-up in rentership, which presents a great opportunity for builders to be able to grow with single-family rentals.”
While many middle-class renters don’t have enough money for a down payment, they do make enough to spend extra on a rental home. Matt Blank, principal at Scottsdale, Ariz.–based build-to-rent developer BB Living, says the average customer at one of the builder’s communities is a couple in their late 30s with two children and an annual income from $80,000 to $110,000. With that, they have the cash flow to pay the monthly rent on a single-family home, which is around $1,600 at one of BB Living’s properties—probably a higher monthly payment in the Phoenix area than what a typical homeowner would spend on a mortgage.
Even so, economics isn’t all that drives consumers to rent instead of buy. Some simply aren’t interested in owning a home.
Contact Jeff Cline at SVN | SFRhub Advisors
SVN | SFRhub Advisors, LLC
2400 E. Arizona Biltmore Circle
Phoenix, AZ 85016