The US housing shortage has intensified yet further during 2023 and tight inventory and affordability levels remain a challenge in most parts of the country. With no signs of a shift in trends in the short term, investors are increasingly turning their attention to single-family rental housing. As a result, analysts believe that the outlook for this sector in 2024 “holds significant promise”.
Significant growth in single-family rental housing
The latest Emerging Trends in Real Estate from PWC and LLC dedicates one of its sections to single-family rental housing and examines its current and future scenarios. It reports that the sector has “experienced significant growth and transformation in recent years”.
Several factors have contributed to the growth of both demand and supply for single-family rentals. They include demographic shifts and affordability issues, although the report states that the industry remains in “its nascent stages”. However, operating margins “have grown slowly but steadily”.
The reasons behind the sustained demand
The report looks in depth at the drivers behind the ever-growing demand for single-family rental housing in the US. They include:
Affordability issues
The tandem of rising interest rates and house prices has narrowed market access for many would-be homebuyers. As a result, rental property is the only viable alternative for a significant proportion.
Emerging Trends in Real Estate 2024 quotes figures from John Burns Research & Consulting that show the divide between homeownership and rental. The monthly cost to rent an entry-level home is around US$2,178, while a mortgage on a similar property is typically US$3,587. The over US$1,400 difference between the two makes renting more financially attractive.
New demographic trends
The affordability challenge means the younger generations are delaying homeownership. According to the report, those among them who already rent apartments find single-family rental housing an appealing option. Furthermore, these tenants value mobility, an option that renting facilitates.
In addition, older Americans, including retirees and downsizers, “are also turning toward single-family rentals”. In their case, the benefits of a “maintenance-free lifestyle” outweigh those of owning a home.
Recent investment in single-family rentals
According to the report, this rental sector has seen an influx of capital in recent years. All investor types, from REITs to individual investors, have been “actively acquiring and managing single-family rental properties”.
An ATTOM report released earlier this year found that expected returns on single-family buy-to-let should reach 7.5% in 2023. In some parts of the US, the figure is even higher. For example, investors in Indian River County and Charlotte County in Florida can expect 15% and 12%, respectively.
Outlook for 2024 and beyond
The report concludes that the single-family rental housing market “holds significant promise”. It predicts that sustained demand will continue and even rise in the short and medium term. It also forecasts continued investor activity in the sector, particularly to “capitalize on the growing demand”.
