Washington, DC (December 6, 2022) – In recent years, a refrain has emerged that attempts to hold providers of single-family rental homes responsible for all of the challenges confronting America’s housing market – from price appreciation, to competition, to rising rents, even to issues of community investment and economic impact. The latest example comes from the Department of Housing and Urban Development, which convened a panel discussion this month attempting to blame single-family rental homes, a vital component of America’s housing market for decades, for limiting access to homeownership. A particular concern for the panel: the role of institutions in the single-family rental home market.
The reality is, America needs more housing of all kinds, both owner-occupied and rental. Despite the rhetoric from the HUD panel, single-family rental homes are critical to the health and stability of our nation’s housing market. They provide individuals and families the opportunity to live in quality, affordably-priced housing located in high-demand neighborhoods,. Single-family rental home companies are simply responding to the demand for a greater range of housing options in those communities.
As for the HUD panel’s portrayal of single-family rental home providers, there are several key facts worth acknowledging:
First, single-family rental homes – whether owned by individuals or institutions – play an important role in ensuring Americans have access to quality, affordably-priced housing. As highlighted by the Wall Street Journal in a November 28, 2022 article, “As Mortgage Rates Rise, More People Choose to Rent Single-Family Homes”:
“Increasingly, U.S. consumers faced with inflation and the high price of homes are pressing the pause button on home buying. The rate on an average 30-year fixed mortgage is now 6.61%, more than double what it was in October 2021, according to housing-finance agency Freddie Mac…The trend has made consumers closely examine whether renting a single-family home currently is more economical than owning one. Nationally, it cost $888 a month more to buy an entry-level single-family home than to rent it, according to September data from John Burns Real Estate Consulting. A 30-year-fixed mortgage with 5% down (including principal, interest, taxes, insurance and maintenance) on such a home cost $3,058 a month, while the median monthly rent on such a single-family house was $2,170, based on John Burns research.”
Second, institutions account for a small fraction of America’s housing. Large institutions own about 450,000 single-family rental homes in the US. Third quarter 2022 data from the Census Bureau’s Estimate of the Housing Inventory show there are 143,613,000 residential housing units in the country, 43,575,000 of which are rental properties. This means, large institutions which own single-family rental homes account for about 0.3% of the nation’s housing and 1% of the total amount of rental housing. Said another way, 99.7% of the housing in the United States and 99% of the rental housing is accounted for by someone other than a large institution owing single-family rental homes.
Source: US Census Bureau; NRHC estimate based on member-provided data and market information
Third, America is facing a shortage of rental housing. The number of single-family rental homes in the US has been on the decline in recent years, falling from 14.5 million properties to 14.3 million between 2019 and 2021. This reflects a broader trend that has taken hold over the past few years: owner-occupied housing is increasing at higher growth rates than rental housing. Census Bureau data show the number of owner-occupied housing units in the US grew by 11.3% (8.6 million units) over the past five years while the number of rental housing units increased just 1.5% (636,000 units). This has led to a decrease in the share of rental housing in the country from 31.4% of the housing market to 30.3% during this timeframe.
Source: US Census Bureau; difference in rates between 3Q17 and 3Q22
Fourth, it is not the case that institutions have negatively impacted homeownership. Over the past five years, homeownership rates in the US have increased from 63.9% to 66.0%. According to data published in October 2022 by the Urban Institute, both Black and Latino homeownership rates increased between 2019 and 2021 – and in each case those rates exceeded that of White homeownership. Regarding home price appreciation, large institutions didn’t own a single property in seven of the ten states that experienced the fastest rates of home price growth in 2021. Lastly, many institutional owners are actually contributing to the growth in homeownership by helping their residents increase their credit scores through the reporting of on-time rent payments to the credit bureaus and providing access to financial literacy programs.
Finally, large institutions have been increasingly transitioning away from purchasing existing homes in favor of building new homes. According to data from the National Rental Home Council (NRHC) and John Burns Real Estate Consulting (JBREC) homes built for the purpose of renting – ‘build-to-rent’ homes – accounted for 26% of properties added to the portfolios of single-family rental home providers in the fourth quarter of 2021, compared to just 3% in the third quarter of 2019. Purchases of existing individual homes by single-family rental home providers during that time decreased from 81% to 57%.
A fundamental lack of supply, estimated by Freddie Mac to be approaching four million units, is the real challenge confronting today’s housing market, both the owner-occupied and rental housing markets. Against this backdrop, build-to-rent housing represents an innovative and effective means to bring a greater supply of homes into the market.
Moving forward, NRHC encourages HUD and its panelists to focus on having a constructive, solutions-based dialogue to address our nation’s housing crisis. This is a conversation NRHC would welcome given our commitment to ensuring Americans have access to quality, affordably-priced housing options that best fit their unique circumstances and lifestyles.
For additional information on the single-family rental home market, please visit:
The US Needs More Housing Than Almost Anyone Can Imagine (The Atlantic)
What Drove Home Price Growth and Can it Continue? (Freddie Mac)
Who’s to blame for the priciest housing in history? (MSN)
Wall Street isn’t to blame for the chaotic housing market (Vox)