Supply Shortfall Foreseen in Single-Family Rentals

Advisory Built to Rent Single Family Market Unit Breakdown Branded. Chart courtesy of RCLCO Real Estate Advisors

Despite garnering increased attention over the coming decade, the single-family rental market will be undersupplied over that period. That is a major finding of a recent RCLCO Real Estate Advisors report on the growing demand for build-to-rent single-family homes.

Given current demographic trends, RCLCO believes there will be much greater demand for single-family rental homes than the current pace of production will be able to fill. The resulting supply shortfall suggests the sector may provide robust opportunity over the next decade. If the number of units produced grows substantially, or if the COVID-19 recession results in more houses being pushed into rental inventory, the projected supply shortfall won’t be as severe. However, RCLCO reports that isn’t the trend to date.

Demand for new build-to-rent single-family houses results from the housing affordability hurdles that bar many households, particularly first-timers, from the for-sale market.

Institutional investors have entered and found very appealing a market once populated by mom-and-pop investors. A 2018 American Community Survey found 12 million detached on-unit rentals in the nation, comprising 27 percent of total occupied U.S. rental housing.

Rising home prices

“A key aspect of this are long-term demographic trends, and rising home prices relative to income,” Gregg Logan, managing director of RCLCO Real Estate Advisors, told Multi-Housing News. Logan authored the report along with managing director Todd LaRue.

“The greatest growth in population by age over the next 10 years (is) people in their 30s and 40s. Older Millennial households are transitioning into the life stage where moving out of apartments and into single-family homes has historically been part of the American dream, albeit with home ownership attached. But the current home ownership rate of Millennial households is below that of Gen Xers and Baby Boomers at the same age, in part because they’ve saved less for a down payment due to economic circumstances, student loans and other debts. They are either entering their family formation years or a period of time where traditional apartment living has become less desirable .. . The single-family housing lifestyle is appealing, but ownership attainability is at a low point.”

Though many people do not have the resources to purchase, they find the lower densities, private outdoor spaces, absence of a down payment and lack of commitment involved in single-family rentals appealing, Logan added.

“When we compare the increasing demand to current levels of production, even after assuming growth in the sector I believe it will be undersupplied,” he concluded. In May, RCLCO predicted a steep falloff in apartment residents paying rent that month.