Investment in single-family rentals booms in the US

Investment in single-family rentals booms in the US

Lack of supply is the fundamental reason behind the price hikes in US real estate this year. Property across the country has seen double-digit increases in value over the last 18 months and the trend shows no signs of reversing. As a result, rentals are in higher demand than ever, with condos and single-family rentals feeling pressure. Demand is particularly strong in the latter market from investors. 

Single-family rentals in highest demand 

Fierce competition for real estate and an acute lack of supply have put unprecedented pressure on single-family rentals in the US. Demand has also skyrocketed from families looking for larger homes in the light of the pandemic. Consequently, market activity is booming with rental rates rising. 

Single-family homes have caught the eyes of investors, both individual and institutional. According to the National Association of Home Builders (NAHB), since 2016, 30% of new single-family home construction in the US has been in the hands of built-for-rent investors. The NAHB estimates that 5% of new homes currently under development are built-for-rent. 

Single-family homes dominate investment types

recent report by Yardi Matrix, a real estate consultancy firm, reveals that investment in single-family rentals has reached unprecedented levels in 2021. In the first quarter of this year, institutions invested US$6 billion into the sector. 

Investment from banks, pension funds, and hedge funds in single-family rentals in the US is considerably higher than other property types. For example, Yardi Matrix reported that investment in the office and retail sectors fell by more than 40% in the year to Q1. 

The appeal of built-for-rent investment 

Consolidated demand and rising rental rates make compelling arguments for built-for-rent investors. According to John Burns Real Estate Consulting, “single-family rentals have proved to be a more resilient asset class than offices and hotels”. 

The National Association of Realtors (NAR) estimate that the average value of a single-family rental ranges from US$250,000 to US$350,000. The price sits on a par with median house prices in the US. 

For their part, rental rates in the US continue to rise. Research by Apartment Guide found that condo rentals increased nationally by 20% in the year to September. However, the median disguises much higher price hikes in many metros where rents rose by 40%. For single-family homes, the rise was lower (10.2%), but still the highest for the last 16 years. 

Solid future for built-for-rent 

Industry analysts believe that the current boom in single-family rental investment is likely to continue while market conditions remain the same. Inventory remains at rock-bottom levels and new construction has failed to keep pace with demand. 

According to NAR, the US has built 5.5 million fewer homes in the last 20 years than previously. However, the population has grown, resulting in a huge deficit of new property. 

Demographics also have another prominent role to play, specifically among millennials. They make up the largest population group in the US and many are now approaching the homebuying period of their life. However, lack of supply will stop many from fulfilling their dream of buying their first home and force them into the rental market.

(Sources: NAHB, NAR, Apartment Guide, Yardi Matrix)