Single-Family Rental Construction Up 66% During the Pandemic

The pandemic supercharged growth in the single-family rental market. With rising home costs and economic disruption, more people turned to single-family home rentals throughout the US, triggering increased interest from institutional capital and a boom in development, according to research from Trepp.

Last year, there were 50,000 new single-family rental homes added to the market, a 66% increase of the average number of new homes built annually over the last decade. Declining homeownership due to rising house prices and increased demand for homes has catalyzed the growth in the market, and development began to rapidly increase in the middle of the year.

Builders are continuing to grow the construction pipeline in 2021. Lennar Corp. announced that it would begin to focus solely on the single-family rental market by launching the $4 billion Upward America Venture that will buy single-family homes and townhomes in high-growth markets. In addition, Greystar Real Estate Partners have targeted growing its portfolio to 25,000 homes over the next five years.

The demand also caught the attention of institutional capital. JLL bought into Roofstock, an online rental housing platform; SFR firm Avanta Residential invested $500 million into the market; and the Wisconsin Investment Board approved a $150 million commitment to the Hudson Single-Family Rental Fund. This year, Progressive Residential has securitized four of the five largest SFR deals, investing a total of $2.8 billion in the space compared to $1.3 billion last year.

Lenders are also betting on the market. Last year, CMBS issuance doubled over 2019 to $8.3 billion, even as issuances for other asset classes fell. Demand isn’t the only reason that lenders were bullish on this housing segment. SFR proved to be resilient through the recession. The CMBS delinquency rate was only 1% in 2020, excluding December. In January, the delinquency rate dropped to .4% and again in April to .31%. By comparison, the delinquency rate for the overall for CMBS spiked to 10.5% in October 2020.

With so much attention focused on the market, Tom MacManus, president of MONEY360, is concerned that priced are becoming inflated. At the Apartments Spring 2021 virtual conference, he said, “Developers and builders of single-family [rentals] can get top-notch pricing. Some of that, to me, doesn’t sound like it passes the test for the long-term.” However, Trevor Koskovich, president of investment sales at NorthMarq and another panelist, disagreed, saying the enormous demand from baby boomers and millennials supports the growth in the market.