SFR Accounted For Nearly 45% Of All Rental Households Last Year
By Lynn Pollack
July 28, 2022 at 08:36 AM
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Between 2020 and 2021, SFR’s share of rental households grew by 104 basis points.
Single-family rentals account for nearly 45% of all rental households in the US last year, jumping in share by the largest margin since 2014.
Between 2020 and 2021, SFR’s share of rental households grew by 104 basis points, the largest single-year jump since 2014, according to research from Chandan Economics and Arbor. The firms say SFR’s share of rental households is “at a peak,” surpassing its previous high of 44.1% observed in 2017.
“Over the next few years, several trends are likely to put continued upward pressure on single-family housing demand,” they note in a report breaking down the research. “ The maturation of the Millennial and Gen Z cohorts, the effects of work from home on housing consumption preferences, and a growing tendency for seniors to ‘age in place’ are all trends that are likely to increase the market need for single-family housing.”
RCLCO predicts the market will grow by another 2.5 million SFR units over the next decade.
But notably, while SFR is taking up a bigger share of the rental market, the same does not hold for SFRs as a percentage of all single-family homes. Rentals accounted for 19.4% of single-family households in 2021, up from 18.5% in 202, but despite that increase, the share of single-family households renting their homes in 2021 was lower than at any point between 2013 and 2019.
“With evolving household preferences increasingly favoring single-family homes, SFR is well-positioned to build on its status as the country’s largest rental housing asset class. However, even as SFR has matured into a thriving and institutionally viable rental sector, it has not meaningfully shifted the single-family housing balance between rentals and owner-occupied units,” the report notes. “This could change if SFR operators either increase their pace of acquisitions or new construction. However, investment purchasers tend to be more price-sensitive than prospective homebuyers, limiting the amount of supply than can be onboarded through acquisitions.”
The firms also note that even as developers continue to pour into the build-for-rent sector, the SFR share of overall single-family construction is still small at about 5%.
“If all else remains equal, SFR and the single-family housing market as a whole should benefit directly from a supportive mix of demographic and cyclical trends,” Arbor and Chandan analysts say.
Current occupiers of SFRs are predicted to stay put as mortgage rates put homeownership increasingly out of reach for many, and that has amped already-hot investor interest in the sector. SFR as an asset class is currently dominated by mom-and-pop investors, with institutional money accounting for just three to four percent of all supply in the United States. But some industry watchers view the sector as a “defensive investment opportunity” in today’s inflationary environment.
“The shortages in existing supply and strong SFR demand trends have raised investor interest in the build-to-rent space of SFR specifically,” said Managing Director Matthew Putterman, who co-leads the SFR team within JLL’s Capital Markets group. “Investors are seeing the sector’s sustained rent growth as a result of the high occupancy and its overall use as a hedge against inflation within their portfolio.”
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