Last modified on March 1st, 2021
By Brittany Benz
2020 was a year of change and opportunity for the real estate industry. While the industry as a whole has faced many challenges this past year, the road to recovery for the single-family rental market looks promising. As property management businesses pivoted their processes to meet their renters’ needs and maintain continuity, investors have scrambled to purchase single-family homes and pave the way for future developments throughout the US market.
In fact, according to a recent Globe St. article, Rangewater Real Estate plans to deploy $800 million in sunbelt markets to develop 15 built-to-rent single-family communities over the next 18 months. Similarly, Invitation Homes and Rockpoint Group recently formed a $375 million joint venture that will acquire single-family homes to operate as rental residences. This dramatic increase in demand is likely driven by the increase in renters moving from city-dwelling apartments to houses in the suburbs, along with an influx of baby boomers entering the rental market. Below we’ll talk about how this shift has impacted the rental market and how it may shape the future of single-family property management.
COVID-19 Reshaped Renters’ Housing Desires
A few months into the pandemic, large, densely populated apartments quickly became less appealing, especially for families who were juggling work, school, and family all under one roof. While vacancy rates began to increase for multifamily apartments in cities like San Francisco and New York, single-family rental vacancy rates plummeted to all-time lows, as more and more renters sought to rent affordable homes in suburbs rather than apartments.
In fact, 59% of new single-family rental home residents relocated from urban residential environments in the third quarter of 2020, according to the Single-Family Rental Market Index produced by the National Rental Home Council and John Burns Real Estate Consulting. As for why people have moved, personal space has played a large role — 44% of renters who moved in 2020 said it was because they preferred less populated areas and almost as many (41%) wanted a change in scenery (2020 AppFolio Survey). In addition, cost likely impacted this trend, as the average single-family home rental rate still remains below the cost of a monthly mortgage in a majority of regions.
What’s Next for the Single-Family Rental Market
So what can we expect to see in the single-family rental market in 2021 and beyond? Michael Carey, Senior Director of Altus Group, predicts we’re going to see a lot more money going into the space, “The buzzword right now is build-to-rent. Companies are building out whole communities of build-for-rent [housing]. We’re seeing a few apartment builders dip their toes in the market. That makes sense with the shift from multifamily to single-family [during the pandemic].”
Carey also predicts we’ll be seeing a continued increase in secondary markets, such as Atlanta, Phoenix, Houston, Charlotte, and Orlando, as the primary markets continue to remain less favorable and expensive. In addition, less populated cities, such as Melbourne, FL, Columbia, SC, Huntsville, AL, and Oklahoma City, OK, may continue to draw investors for their low property costs.
When the pandemic does eventually subside, it’s unlikely it will impact the demand for single-family rentals. Now, after many have gotten accustomed to having more space and flexibility with their jobs, they are likely to continue renting homes. Some may be more willing to drive extra for the added space and freedom, while others may be able to make long-term remote work arrangements with their employers. In short, living and work decisions are no longer as tightly bound as they once were.
How Technology Is Leading the Way
David Howard, Executive Director of the National Rental Home Council (NRHC), recently sat down with Common Area podcast co-host David Bodamer to discuss how COVID has changed the housing industry and the critical role technology plays in creating success in a post-COVID world.
While most people automatically think “apartments” when someone says “rental homes,” Howard says the reality is that more than half of the 43 million rental units in the United States (23 million) are single-family home rentals, that includes homes in the one to four unit range.
As for how property management companies are managing the homes in their portfolios, technology is really paving the way. In the past, managing single-family homes across various regions wasn’t easy, “The technology wasn’t there. They didn’t have the management systems down. It was too unwieldy to manage, but that’s not the case anymore,” says Carey. Today the property management solutions available are far more advanced.
When it comes to managing single-family rentals, much of renters’ and management company’s needs are the same. Howard explains that having a robust technology suite can make it easier to manage multiple markets by duplicating on-site management, customer service, and staffing policies, “Technology has made so much of this business possible… it’s really the innovation that technology allows that enables companies to operate these portfolios at scale.” He says the key is to leverage technology to build your portfolio in similar markets such as Atlanta, Phoenix, St. Louis, and other growing metros.
Going into 2021 many have already stepped out of their comfort zone and entered the single-family rental market. As David Howard and other industry experts have said for decades, “Housing is a mainstay of the US economy. People will always need some place to live.” Forward thinking property management companies who position themselves for growth by focusing on rising metros and adopting the latest technology will be the most poised to succeed. To see what other multifamily experts are saying about the future of property management, take a look at this article.