Quarterly Market Update: The Gap Between Single-Family Rental Demand and Supply Is Growing
Demand for single-family rental homes in the United States is intensifying, while the supply of available properties is shrinking. Rent growth for rental houses is accelerating as a result. To satisfy escalating demand, the rate of new home construction must equal or exceed the peak levels seen during the 2003-2007 housing bubble, but building activity is far short of this mark. As long as nationwide homebuilding remains stagnant, investors in single-family rentals can expect above-average rent growth.
Renters Pay More for Single-Family Homes
A preference among renters for single-family homes has emerged in the U.S. over the past decade, and the widening gap between the average monthly rent for single-family homes and multifamily units (Figure 1) is a notable indication of this trend. Data from Zillow shows that the premium on rent for single-family homes has quintupled over the last decade, surging from less than $90 in 2015 to nearly $450 today.
Single-family rental properties have sustained a decade-long track record of positive year-over-year rent growth; by contrast, owners of multifamily units absorbed a 2.2% dip in rent during the pandemic. This gap continues to widen; investors in single-family housing have enjoyed annualized rent increases of 4% over the past three years, double the 2% growth in rent for multifamily units.
The preference for single-family rentals is widespread, not confined to a specific market. The monthly rent for a single-family home exceeds that of a multifamily unit in each of the 50 largest metro areas. And over the last three years, single-family rent growth has surpassed that of multifamily units in every top 50 market except for Hartford, Connecticut.
Demand for single-family homes is elevated, partly due to demographic shifts. The largest 10-year age cohort in the U.S. population is currently millennials in their 30s (Figure 2). This is the age when young couples typically expand their families and seek the greater privacy and outdoor space that single-family residences offer.
Fewer Single-Family Homes to Rent
Despite the widening, persistent willingness to pay more for single-family homes, these rental properties are becoming increasingly scarce. In fact, all growth in the rental housing sector since 2016 has been concentrated exclusively in the multifamily property segment (Figure 3). This has driven the number of households in multifamily rental properties to an all-time high, with estimates approaching 30 million units by 2025, according to the Current Population Survey. Last year saw a record-shattering 6.1% acceleration in this growth.
Meanwhile, the supply of single-family rental units is gradually decreasing, reversing the post-Great Recession period of rapid growth. Inventory peaked in 2016 at nearly 19 million units but has seen a gradual contraction over the last 9 years, settling at 18 million units earlier this year. Losses intensified following the pandemic in 2021 and 2022 — a surge in home prices, which surpassed 15% each year, prompted many owners to sell investment properties they had acquired a decade earlier.
Homebuilding Must Rise to Housing Bubble Levels to Meet Demand
A historic shortfall in homebuilding over the past decade and a half is plaguing the U.S. housing market, resulting in a dwindling inventory of rental houses. Builders delivered only 6.5 million single-family homes between 2010 and 2019, marking the worst performance on record — roughly half the number built in the preceding decade (Figure 4). While construction has rebounded, this decade's pace is only projected to match the single-family home output of the 1980s, despite the U.S. population having increased by 100 million people since then.
Meeting the demand for rental housing may necessitate a return to the record-setting pace of homebuilding activity seen between 2000 and 2009. This conclusion is supported by an analysis of the nation's 25 largest rental markets, as shown in Figure 5.
The horizontal axis measures each market’s share of homes built between 2000 and 2009. This metric is one of 498 social, economic, housing, and demographic characteristics readily accessible from the Census Bureau’s official tabulation of the 2024 American Housing Survey. We see that only 9% of housing units in Detroit, Michigan, were built between 2000 and 2009, one of the smallest proportions among the 25 largest metro areas in the U.S.
The vertical axis in Figure 5 plots the share of single-family homes in each market that is occupied by renters. AppFolio calculated this proportion by dividing the count of non-owner-occupied single-family residences (excluding vacation properties) by the total number of single-family homes in each metro area. Markets with a higher concentration of single-family rentals, such as Las Vegas, Nevada, are more effective at satisfying the demand for rental homes.
We found a statistically significant positive correlation (r = 0.63) between the share of housing units built in the 2000s and the share of single-family rentals among the top 25 metro areas. This robust relationship makes sense: Overbuilding during the 2000s, which contributed to the housing bubble and the subsequent Great Recession, also inadvertently laid the foundation for today’s successful rental housing markets. Since then, homebuilding has been insufficient to meet the demand for single-family rental units, resulting in increasing returns for owners and operators of rental homes.
Implications for Investors
The data points to a growing gap between renter demand and available housing supply. Renters are signaling their strong preference for single-family homes by consistently paying a substantial and growing premium compared to multifamily units. But this demand is being met with a shrinking supply of single-family rental properties, a contraction driven by a long-term failure in homebuilding to keep pace with population growth and exacerbated by post-pandemic home price surges.
The strong correlation between successful single-family rental markets and the construction boom of the 2000s suggests a clear path forward: To close the gap between demand and supply for single-family rentals, construction must return to — or even exceed — the housing bubble’s pace. Until homebuilding returns to that record pace, owners of the existing single-family rental stock are poised to continue enjoying a significant market premium.
Why This Matters
The widening gap between single-family rental demand and supply presents both a significant challenge and a powerful opportunity. AppFolio customers — from those managing units day-to-day to those deploying capital — can leverage market insights like these to make data-informed decisions, optimize operations, and maximize portfolio performance in a market defined by scarcity and high renter demand.
For Property Managers
AppFolio Property Manager offers single-family and multifamily operators a centralized platform to perform at their very best in a hot market. Through integrated marketing, leasing workflows, online applications, built-in screening, and digital move-ins, teams can quickly price, market, and move qualified residents into highly sought-after inventory. Coupled with maintenance automation, resident portals, and unified accounting/reporting, teams can maximize the performance of every home and deliver a superior resident experience. This is crucial in a competitive market where every vacant day represents meaningful lost income.
For Investment Managers
AppFolio Investment Manager provides a complementary layer for investment teams. It combines a modern investor portal, streamlined fundraising, automated distributions, and performance reporting with AppFolio Alpha™. This AI-powered insights engine helps investment managers spot trends faster, compare asset performance across the portfolio, and identify opportunities to strategically reallocate capital.
Together, AppFolio Property Manager and AppFolio Investment Manager form a single Performance Platform. This platform connects on-the-ground operations with investment strategy, ensuring customers can not only understand the single-family supply-demand gap but actively utilize it to drive better long-term outcomes for residents, owners, and investors.