SFR Rent Increases To Continue As Demand Spikes

The single-family rental market is still seeing strong demand despite economic challenges due to changing demographics and the effects of the COVID-19 pandemic.

That’s according to panelists at IMN’s Single Family Rent Forum (East) in Miami Beach on Monday, who said multiple conflicting dynamics in the market are beginning to put pressure on one another. Those dynamics include the undersupply of homes, rising interest rates, demographic shifts, and spiking home prices and rent.

Trey Cummings, CEO of CS Equities, anticipates rents will increase because obtaining entry-level homes is hard for families, which creates great demand for rentals.

“The rates will not suffice. We’re going to have to watch that a little bit because we’re going to start creating problems and start pushing people out,” said Cummings. “I foresee us raising rents but we probably won’t be as aggressive as we have been at times.”

Sam Harrity, head of capital markets at Mynd, agreed that rental rates will continue to rise.

When it comes to rental renewals, Harrity said he’s likely to be more lenient on rates because he doesn’t want to lose tenants.

“The flip side of it is there is a fiduciary obligation to our clients, and we do have an obligation to tell them our view of what could happen if they wanted to,” said Harrity.

It’s important to get a view of each market and see what the target rent increase would be, according to Harrity.

The undersupply of homes is a global problem. In the US there’s a shortage of approximately five million homes, and that trend isn’t changing any time soon, as builders have not kept up with demand for many years.

That means strong relationships with builders and brokers are key to getting more inventory, according to Cummings.

“When you see the inventory that goes on the market, that’s what everybody’s passed over. Most of the stuff is coming to us before it ever sees the market. That’s the way we’re dealing with undersupply,” said Cummings.

Building a Way Out of Recession?

Harrity said there aren’t enough finished homes to buy, and it will be hard to build enough homes to accommodate everyone over the next 10 years.

“That translates to higher home prices and rents,” he said.

If the industry isn’t proactive about that now, the supply shortage will become a social issue, according to John Ryan, chief strategy officer of Genesis Capital.

“Regardless of the political party, we’re going to have to open this up and start building,” said Ryan. “I think we’re moving away from affordability of homeownership to the affordability of shelter. Long term, we’re going to have to build a lot of homes.”

Owners of existing homes won’t suffer, Ryan stressed.

“If we do go into a recession, building housing is going to take us out. We are caught in a housing short squeeze and we’re going to start building.”

Panelist Polina Ryshakov, senior director of research and economy at Sundae, said the amount of undersupplied homes in the nation actually doesn’t account for demolished homes, which is more than 200,000 homes.

Recession isn’t a fun thought, but if there is one, Ryan said it will probably prompt a push to get people back into the office.

“You’re seeing a few signs of that tempering a bit,” said Ryan. “What seemed like a one-way trade to work from home, does that come back a little bit? I think that will.” Multiple layoffs and the potential for more are putting extra pressure on the housing market. 

“In one sense you need to try to keep everything affordable, but at the same time, you need the rates kind of low to induce building to get out of it,” said Cummings.

While the panelists said they don’t believe the ratio of people working in the office and working from home will ever be the same as it once was, it’s a trend they foresee continuing, and something the single-family rental sector will have to consider when doing business, especially as inflation impacts investing.

“SFR real estate is even more of a hedge against inflation,” Hannity said. “I think the people that can do it are going to judiciously make a bet to do it. They’ll keep going steady as you go and take advantage and some of the smaller players and end buyers are leaving the market.”