Tuesday, October 17, 2017 / by Carlos J Higareda
Why Single-Family Rentals Gain Market Edge
Single-family rentals are the fastest-growing segment in the housing market, outpacing owner-occupied single-family homes and all multifamily housing, according to the Urban Institute. Single-family rentals now account for 35 percent of the country’s 44 million rental units.
That figure is likely to increase, according to a panel of experts hosted by the Urban Institute’s Housing Finance Policy Center. Changing demographics and housing market conditions will fuel more growth in the rental market, the panelists say.
“Young people are waiting longer to get married and have children, which can make renting more economical,” the Urban Institute notes in a blog post about the panel discussion. “And while the age distribution of the U.S. population suggests most millennials are reaching the age of household formation and demand for single-family homes, much of this demand is likely to be channeled into the rental market.”
Two barriers remain blockades to homeownership for many millennials, tight mortgage credit standards and increasing student loan debt, the panelists note. So who’s buying these single-family rentals? Institutional investors account for only 200,000 of the more than 15 million single-family rental units nationwide, or about 2 percent of the market, the Urban Institute notes. On the other hand, 45 percent are owned by investors who own just one unit, according to Investability.
During the most recent financial crisis, institutions heavily invested in single-family homes, but that has since changed. Institutional investing is a small fraction compared to the growing number of mom-and-pop investors who have entered the sector.
But several headwinds stand in the way of sustained growth in the single-family rental market, Urban Institute panelists caution. Now that an abundance of cheap homes is no longer available, future growth will largely depend on successful management of what investors already own, says panelist Sandeep Bordia with Amherst Capital Management. Also, growth may come as smaller players look to consolidate. “While the single-family rental market may continue to grow rapidly in the coming years, it remains unclear whether institutional investors will make an increasingly large mark on this space or continue as small, niche players,” the Urban Institute writes on its blog.
Source: “Five Things That Might Surprise You About the Fastest-Growing Segment of the Housing Market,” Urban Institute (Oct. 3, 2017)