Single-Family Rental Demand is Surging, The Fastest Growing Trend in the Housing Industry
Demand for single family rental homes is surging, and now, even homebuilders are getting involved, redesigning and reshaping the sector, even becoming investors themselves.
Homebuilders have always sold a portion of their new homes to investors as rentals, the strong demand has changed the way some homebuilders operate, becoming owner-landlords themselves.
Mark Wolf, founder and CEO of AHV talked to MSNBC to give insight into their new strategy;
“We basically took an apartment and went horizontal instead of vertical,” AHV founder and CEO Mark Wolf said. “About 93% of the apartment stock consists of studios, one and two bedrooms, very few three bedrooms. We saw a growing need coming out of the downturn, to provide three- and four-bedroom homes to the renter society.”
Wolf, who has experience in the multifamily apartment market, saw a need for more single-family homes after the housing crash, and he says that demand has not fallen off. While the homeownership rate has risen from its historic low in 2016, it is now starting to slip again.
“We think there’s a major shift in the demographics. Empty nesters are done taking care of their homes. They want to downsize, they want portability, mobility in the lease. The millennial household formation, they’re not really dialed into taking care of a home, they want to go out and do the same thing that the boomers are doing, which is to enjoy life, not work hard for their house,” said Wolf.
One of the biggest factors in the strong demand for single family housing is millennials looking to get out of apartment rentals and into homes. While many cannot afford to buy with the current house prices, single family home rentals are surging with this demographic. Last year almost 43,000 single family homes were built to rent, the largest number in nearly 40 years according to the National Association of Homebuilders. The built-for-rent share of housing starts is also rising rapidly, nearly double its recent historical average (from 1992-2012)
Historically, home ownership has always been touted as the “American Dream” with renting carrying a social stigma. While the average household income for many is now over the $100,000 mark, people are beginning to choose renting over ownership and we are seeing a shifting trend toward single family home rentals becoming the more popular and affordable choice for many.
“Most publicly traded builders are talking about building it for others rather than taking the risk themselves, while private builders are looking at taking more risk,”
Wolf sees the build-for-rent market as less risky, especially in the short term.
“We believe in the long-term cash flow game. So if you hold these properties for 10-plus years, or even seven-plus years, the residual cash flow is worth more than the sale one time,” said Wolf.
Homebuilders have struggled with entry level home development for years due to many factors, like lumber prices, labor costs, permitting and regulation. Many newly built homes were difficult to generate profit from, so shifting to a build-to-rent strategy while holding onto the properties themselves, generating cash flow and removing the overhead of trying to sell in a difficult market is proving to be a valuable strategy. We expect many more homebuilders to follow suit in the near future.