Single-Family Homes Now a Growing Force in the Rental Market

Single-Family Homes Now a Growing Force in the Rental Market

Corrinne E Giller
When one pictures a rental property, the average person will likely imagine an apartment, likely in an urban building with a number of other units. However, in the post-recession age, more and more people are choosing to rent single-family homes as a way of accessing a larger living space while avoiding the financial risk of owning a home. This trend is creating a unique opportunity for both property owners and real estate companies to take advantage of a sector of the housing market that has previously been viewed as best left to individuals rather than businesses.In July 2014, the Rochester, N.Y.-based real estate company Broadstone Real Estate announced that it had purchased 12 single-family residences in the Atlanta area for around $10 million. This effectively doubled the company’s portfolio of single-family homes it had purchased in 2012 around Minneapolis, Palm Beach County in Florida, and Rochester. This signifies a shift in Broadstone’s direction, which has traditionally involved commercial properties such as medical offices and retail space.

However, Broadstone is not the only company suddenly taking an interest in single-family homes: the New York-based financial services group Blackstone Group L.P. is now the largest landlord of single-family homes after spending around $8 million on 43,000 homes. Likewise, the California firm American Homes 4 Rent started in 2012 and now owns over 25,000 homes in 22 states. This is a surprising shift in the rental house market: according to an analysis from the investment banking firm Keefe, Bruyette & Woods Inc., roughly half of the 14 million rental homes in the United States are owned by individuals who own one rental property. In contrast, only around 2 million are owned by people or groups with 10 or more properties. This is likely because rental homes are seen as a business that involves intensive management. After all, as most homeowners can tell you, the average house requires a significant amount of repairs and maintenance, a level that might not make sense for an investment in a traditional housing market. And yet the New York Times recently reported that single-family homes are the fast-growing segment of the United State rental market, with single-family units increasing to 33.5% of all rentals from 30.8% over a five year period.

But the housing market of years past has changed that: rapidly decreasing home prices in recent years have made this a more worthwhile venture. Moreover, foreclosure rates and changing financial situations have resulted in the lowest home ownership rates in 20 years, creating an increased population of potential renters. The interest rates on 15 and 30 notes have also dropped to historic lows, creating the perfect opportunity for companies and individual property owners to invest in single-family rental homes. Additionally, new technology has made it easier than ever for investors both big and small to find, purchase, and manage a portfolio of rental homes.

This trend could have a number of effects on communities around the country as the housing market improves. Chico, California, for example, is reportedly experiencing a surge of home building projects as low interest rates, coupled with overall economic improvement, make it possible for potential homeowners to once again buy their own homes. This could effectively prevent the single-family rental phenomenon from reaching Chico, or it could encourage landlords and real estate companies to build new properties for use as rental units.

In light of these potential developments, however, there have been concerns that real estate companies are pricing smaller investors out of the housing market. In March, 80 housing organizations wrote to a number of federal regulatory agencies, citing worries that area homeowners may be displaced or even that another housing bubble could be created. They have requested that the agencies provide legal guidance to help both landlords and companies navigate this changing market, but the agencies have yet to respond. It seems that, as with most, this investment opportunity comes with a degree of risk.