Check out the trends, and many residential shoppers — notably younger people — prefer to be tenants so they can pick up and leave at a reasonably short notice. Yet homes, comparatively large inside and with yards outside, remain in demand. Combine the perks, and you have the single-family rental housing making up a rising share of the residential scene.
Since the late 2000s financial crisis, single-family rentals, or SFRs, have been the fastest-growing segment of the housing market, according to Walker & Dunlop, a Bethesda, Maryland-based financier providing funds to multifamily and commercial property owners.
Leased homes account for 35 percent of the country's 44 million rental units, compared with 31 percent a dozen years ago, the company says. Walker & Dunlop sees continued growth due to changing demographics and evolving household preferences. More families, it says, will search for affordable ways to live comfortably.
The company joins a growing list of financially related firms and investors getting involved in homes for rent, including:
- Cerberus Capital Management single-family property manager. Through its FirstKey Homes unit, the company intends to raise $500 million in order to add more than 40,000 homes under ownership to its current portfolio of 11,000 houses, according to Bloomberg business news service.
- Pretium Partners. The group raised $1 billion via a fund to grow its single-family rental venture, Progress Residential. The new fund's strategy, Housing Wire says, is to provide investors with access to a "diverse pool of single-family homes across attractive major markets in the U.S. that are experiencing above-average employment and population growth."
- Tricon Capital Group. The outfit teamed up with the Teacher Retirement System of Texas and GIC Pte. to put forward $750 million for single-family rentals.
- Front Yard Residential, formerly known as Altisource Residential, says it expects to pony up $500 million to expand its single-family rental business.
In Walker & Dunlop's case, the financial firm this summer took a step toward selling and managing lower cost rental housing. The company had been approved as a seller and servicing firm in Freddie Mac's Affordable Single-Family Rental pilot program "to offer additional financing options for workforce and affordable rental housing in 1-4 unit buildings." The Maryland company would focus on middle-sized investor markets with an average loan size of $10-$25 million.
“Walker & Dunlop has expertise in single-family rental lending, and we look forward to offering our customers best-in-class execution of the program and further enhancing our offering in the SFR space,” Willy Walker, chairman and chief executive, said in June when the program kicked off with eight other companies.
“Increasing the availability of affordable rental housing across the United States is the top priority for Freddie Mac's affordable single-family rental pilot,” says David Leopold, Freddie Mac Multifamily vice president of targeted affordable sales and investments.
But just as the program revved up, the Federal Housing Finance Agency said this month that secondary mortgage backers Fannie Mae and Freddie Mac will be shutting down their single-family rental pilot programs and ending their participation in the single-family rental market, except for previously existing small-investor programs.
The agency explained that the expansion of government sponsored enterprises such as Freddie Mac and Fannie Mae into single-family rentals was a test to see if their backing was needed in a growing field, concluding that the market can function without the GSEs. Bloomberg says any single-family rental market expansion for the large players now will emanate from private capital sources.
In addition to existing homes that are rented out, a small but fast-growing category are homes specifically built for rent. According to the National Association of Home Builders, 42,000 rental homes were built in the past 12 months, compared with 29,000 between last August and August 2016.
The market share of single-family homes built-for-rent stood at 4.7 percent of single-family residential starts as of the second quarter, based on Census Bureau figures and an NAHB analysis. The share is higher than the 2.7 percent historical average 1992-2012 but trails the 5.8 percent posting at the start of 2013.
Increases in the built-for-rent home share stems from declines in the home ownership rate and continued fallout from the Great Recession more than a decade ago, the home builder's group says.
"Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains low in terms of the total size of the building market," the NAHB notes. It's also a tiny share compared with the 35 percent single-family home portion of the total housing stock that's leased. "As homes age, they are more likely to be rented," the home builders organization says.