A Financial Profile of a Single-Family Home Renter

More than a decade after the Great Financial Crisis, tight credit access and a lack of new home construction at affordable price points have kept homeownership out of grasp for hundreds of thousands of American families.  

Enter the institutional single-family rental industry, which has exploded in recent years in response to the overwhelming demand from families with young children who crave more space and privacy than other rental demographics.

A new report from The Amherst Group shows that single-family renters in homes constructed after 1980 tend to be larger families with more children. They are also typically younger and more likely to be single parents than owners, suggesting “it may take more time for these households to accumulate the requisite down payment and afford the monthly mortgage servicing payments,” the report notes.

The differences also lie in credit scores: renters tend to have credit scores that are “far below” mortgage standards, and their incomes are typically lower.  Tightening credit requirements post-recession meant would-be buyers with scores below 660 were virtually shut out of the homebuying market. And now, “even amid rising credit scores, the average household score of 710 would find it difficult to borrow,” the Amherst report notes. “This means that neither the average Generation X credit score of 700 nor the average Millennial credit score of 680 would enable them to become a first-time home buyer at today’s standards. Given how credit scores favor the banked and those better off, the new credit thresholds understate how difficult it is for the average American family to access a mortgage.”

Data from the Amherst Group indicates that 85% of SFR residents would not qualify for a mortgage.

A lack of new home construction at entry-level price points exacerbates the problem. In the ten years leading up to the GFC, cities across the US annually added up to 1.5 million single family homes per year. That number plummeted by more than 70% after the crisis, and “has yet to recover,” the report notes. In 2019, the US housing market permitted just half of pre-GFC construction levels.

“Because of the tightened credit box among mortgage lenders, builders know that the best market for new homes is wealthier households with higher incomes. As a result, the types of homes that are being constructed cater to higher-income buyers rather than entry-level buyers or starter homes,” the report notes. “Lower construction rates paired with higher-quality homes culminate in price levels that bar rental households from buying.”

Other than credit and income, a few major factors distinguish SFR renters: they’re younger than their homeowning counterparts. The median age of single family renters is 42, while the median age of single-family homeowners is 57. They also have more children living at home; 50% of renters have kids under 24 at home, compared to just 33% of owners. homes. And 44 percent of single family rental households consist of one to two members, versus 59% of existing homeowners. 

Finally, single-family renters are more likely to have one income, are less likely to be married, and are more likely to be single parents.