At the beginning of the pandemic, PERE spoke with one senior residential sector executive about a burgeoning appetite growing among institutional investors for meaningfully greater exposure to the single-family rental (SFR) housing asset class in the US. We were struck by his expectation that the surge in investment allocations we were seeing would be temporary.
Certainly, today’s investing trajectory would appear to prove the surge was anything but. As PERE’s September issue cover story testifies, institutional appetite for detached suburban or rural housing has only intensified since then. Indeed, the second quarter saw a record $48.5 billion of single-family housing purchased in the top 50 US metros, broker Redfin recorded. That brought the year-to-date total to another record $87.4 billion.
Redfin reckons 16 percent of the second-quarter activity was by institutions or companies as opposed to individuals. Meanwhile, The National Rental Home Council, an industry group representing SFR owners, says overall institutional ownership currently stands at just 1.16 percent of the 23 million-unit US single-family rental home market. But with strong performance relative to other property types, it would be hard to expect that low proportion not to change markedly. While most single-family housing strategies sit within wider remits on the private side, and thus hard to read in isolation, the REIT markets told a story of 6 percent total returns, trade group NAREIT says. That’s compared to -15 percent for apartments and -5 percent for the overall REIT market last year.
But while a high degree of resiliency in appetite for single-family housing is becoming easier to predict – especially as covid restrictions ease and vaccinations prove successful – countering this enthusiasm will be sensitive press. As PERE’s deep dive stresses, this is a marketplace that brings with it condemning headlines, particularly in mainstream media. “How corporations are buying up houses – robbing families of the American Dream” was a headline in the New York Post last July. “Private equity landlord seeking to evict renters despite ban” appeared on Bloomberg in April.
Accusations of tenant evictions during eviction moratoriums and pushing the home affordability gap further from people are among the issues faced by institutional money keen to gain exposure to SFR, as it has been with other forms of residential, such as multifamily. For this reason, certain investors, such as The Oregon State Treasury, are steering clear for now.
Others, such as consultancy RCLCO, say the coast is clear given the sheer upswing in institutional participation. It might well be a growing factor that a strength in numbers – Blackstone, Brookfield, KKR, Rockpoint Group and Ares Management are now each significant SFR players – has somewhat emboldened greater institutional ownership of this marketplace.
Either way, a buying force driven by demographic trends over person requirements looks like no passing fad. The population growth rate for urban centers in US metro areas with 1 million or more people was -0.15 percent between 2019 and 2020, according to research from think tank Brookings Institute. Suburban growth, meanwhile, was 1.03 percent – the biggest divergence between the two population groups in more than a decade.
Such behavioral momentum looks to be more powerful for private real estate investors than the headlines that encapsulate the issue with it. Government policy movement might have a greater say about execution in the future. But the signals out there today tell us private real estate investors will continue to grow market share, nonetheless.