The rental market is as hot as the asphalt on a hot summer day. Since 2006, the amount of Americans living in rental properties have soared to nearly 37%, the most substantial percentage since 1965. In particular, the single-family rental market has been the fastest-growing segment of the U.S. housing market.
The number of households lived in by owners declined from 76.1 million to 75 million in the aftermath of the housing crisis, according to Census Bureau data.
One sector of rental housing has enjoyed a particularly dramatic rise in the past decade: Single-family for rent is the fastest-growing segment of the U.S. housing market, according to an analysis by the Urban Institute, which reports that growth in single-family rentals has outpaced the growth of both single-family for-sale and multifamily housing in recent years—and it’s predicted to keep growing in the years ahead. According to the National Association of Home Builders (NAHB), 56% of the gains in rental housing stock from 2005 to 2015 were due to single-family homes.
The demand for single-family rentals has prompted a number of developers to tap into the market with a new product: cohesive single-family rental communities filled by niche renters with lifestyle needs that are unlike those of apartment renters.
Economic Factors Create Perfect Storm
Industry experts say the current economic climate has created a perfect storm for the single-family rental market’s success. Student debt, a tight job market, and the inability to save for a down payment have kept a number of potential home buyers out of the market.
“Credit markets are still extremely tight, and a lot of people don’t have the right credit score. With stricter lending terms than ever, some consumers aren’t even potential participants in the market,” says Dennis Cisterna, CEO of Investability Solutions, a real estate investment firm in the single-family rental space. “[These factors] are eliminating people from homeownership. Without more alternative solutions to getting people into homeownership, whether that’s a low–down payment mortgage or assistance programs, there’ll be a ramp-up in rentership, which presents a great opportunity for companies to be able to grow with single-family rentals.”
While many middle-class renters lack the money for a down payment, they do make enough to spend extra on a rental home. Matt Blank, principal at Scottsdale, Ariz.–based build-to-rent developer BB Living, says the average customer at one of the builder’s communities is a couple in their late 30s with two children and an annual income of $80,000 to $110,000. With that, they have the cash flow to pay the monthly rent on a single-family home, which is around $1,600 at one of BB Living’s properties.
BB Living has built six communities in the Phoenix metro area and is close to reaching the 1,000-unit benchmark. When the business first launched in 2012, BB Living offered consumers the option to either rent or purchase the homes, a strategy that allowed the company to figure out what the market needed while it got up and running.
“We sold 35 houses that way and rented 35 houses at the same time—the market seemed to want both options at the time,” Blank says. “But once we were able to prove the rental market and prove that people actually wanted to rent single-family homes, we were able to secure financing and stop the for-sale effort to focus exclusively on rentals.”
BB Living’s communities are located in master-planned communities that are already fully outfitted with neighborhood amenities like swim parks, golf courses, and large communal spaces. The company will soon break ground on its first stand-alone community of 217 single-family rental units with a resort-style pool, workout facility, dog park, and walking trails. The units will range from 1,500 to 2,400 square feet and include three to four bedrooms and a two-car garage.
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