Demand for Single-Family Rental Market Expected to Grow

One trend to watch in the real estate market in the coming years is that demand for single family homes specifically built to rent is expected to grow, according to a recent report.

Real Estate Advisors is forecasting that, given current demographics of more householdings hitting the life stage where single-family housing better suits their needs, demand for built-to-rent homes is set to increase.

“Given demographic trends RCLCO forecasts much greater demand than the current pace of production, which could result in a significant supply shortfall, suggesting the sector presents a strong market opportunity in the coming decade,” according to the report, written by managing directors Gregg Logan and Todd LaRue.

According to the report, the demand will be driven by Millennials reaching their 30s and 40s, starting families, but still facing affordability challenges that are keeping many would-be first time homebuyers out of the market.

The report said the homeownership rate of Millenials is below the rates for Gen X and the Baby Boomers at the same age, due in part to the fact that they have less in savings for down payments because of the great recession, student loans and other debts, but, while many do not have the means to buy a home, they are attracted to the outdoor and lower density spaces that single-family rentals provide.

The report discusses trends over the last few years that involve large investment groups coming into the market that was historically dominated by smaller property owners. However, the report said, in recent years, much of the multifamily developments have been in high demand urban areas, which attracts both young professional singles and couples who want to live near their work and to enjoy urban amenities, such as entertainment, restaurants and bars.

Single-family rentals, and built-to-rent products, however, have generally focused more on suburban locations, which have less density and are priced accordingly, the report said.

Of course the report notes that the COVID-19 pandemic, could change things, but likely not in the long term.

“There is speculation that the current COVID-19 health crisis will drive more Millennials to the suburbs,” the report said. “That said, we do expect suburban activity centers to make a come-back as the health crisis recedes given Millennials’ demonstrated preferences for locations with a sense of place and urban amenities, and expect proximity to these places to be important to single-family rentals in lieu of legacy urban downtowns.”