What is driving demand for single-family rentals?

In recent years, the single-family rental sector (SFR) has become one of the most fashionable in real estate. Barely formulated a little over a decade ago, the asset class now has some of the nation’s largest homebuilders among its leading participants, as well as aggregators, private equity funds and real estate developers. For rent.

Despite some concerns about the quality of the communities delivered by some of these players, particularly those looking for a quick return on investment, SFRs are growing in popularity with tenants. In fact, current demand drivers point to the long-term attractiveness of SFRs among tenants of several demographic groups.


Homeownership challenges are increasing

The home for sale market is in the news daily, with regular reports on price spikes, bidding wars and supply issues. First-time buyers have a hard time getting their foot in the door. Once a cornerstone of the American Dream, home ownership has become out of reach for countless Americans across the country.

As builders grapple with rising land and construction costs, the financial feasibility of delivering new supply in the starter home category has become a legitimate challenge to profitability, compounding the problem.

The lack of production of new homes, as well as the shortage of existing homes in good locations, combined with pent-up demand, has led to a massive spike in home prices across the country, even in markets under downward pressure. on population.

Renting: an essential alternative to shortages in the sector of real estate for sale

The relentless dynamics of the sales sector are now forcing a record number of potential buyers to become tenants. Yet despite the strong performance of multifamily production since the 2007-2009 financial crisis and during the pandemic, many sites in the United States still lack quality rental options.

With much of today’s tenant demand coming from those who desire the lifestyle, privacy and space of a single family home, the demand for alternatives to the traditional apartment is growing. In fact, demand for SFR has been growing for years, alongside peak apartment performance over the past decade.

With a growing desire among Americans for more spacious and flexible rental options, it’s only natural that demand for single-family rentals has grown even more over the past two years. SFRs which are enviably appointed contiguous communities in prime locations with on-site maintenance are attracting the greatest interest among tenants today.


Effects of the pandemic on single-family rentals

There is another phenomenon linked to the pandemic, which affects in particular the location of new communities for sale and SFR.

A confluence of factors over the past two years, including lockdowns, physical distancing measures, and remote working and learning, has led to a mega-displacement of populations out of high-priced urban cores into markets. suburban – what popular media have called “suburban change.” Two main examples are the massive movement of people out of California and into many markets in Texas, as well as the exodus of Manhattanites from New York to various Florida markets.Many of these migrants seek to settle in single-family rental communities.

Evidence supporting the massive moves to Texas and Florida comes from moving and storage rental company U-Haul, which ranked the states No. 1 and No. 2, respectively, for population growth. in 2021, accounting for 60% of growth across the top 25 growing cities last year.

In fact, 10 markets in Florida and five in Texas are in the top 25 of U-Haul’s Top 50 Growth Markets in 2021, where growth is calculated by the net gain of U-Haul one-way trucks entering a city or town. a market in relation to their departure. same city or market in a calendar year. U-Haul notes that mass migration to southern states continues to be amplified by the lingering pandemic.

Is the demand for single-family rentals here to stay?

Some might argue that the coronavirus-related desire for more outdoor space and amenities that SFRs offer might be just that and nothing more.

Yet what is probably more likely is that even when we go through the most difficult part of the pandemic and the world begins to normalize, it is likely that the experience will have an impact that will last for many years. , even decades, to come.

Whether or not they are wary of the virus, many home buyers will now likely work remotely and be less likely to give up private outdoor space and their own garage. They will have experienced the lock-and-go single-family lifestyle and be willing to pay a little more for it.

The dynamics of homes for sale are unlikely to change drastically due to persistent systemic issues, such as labor costs and supply chain issues. While the upward trend in interest rates could have a slight chilling effect, new supply will remain difficult and home ownership will be inaccessible for a large segment of the population. Single-family rental communities in suburban markets will continue to be one of the only ways consumers can afford and achieve the lifestyle they seek.

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