The Burgeoning SFH Rental Market

The July 21, 2017 issue of the Wall Street Journal has a fairly extensive article about the Wall Street-fed companies fueling the SFH rental market. They are transforming the housing market in many suburbs around the country.

Those four companies and others like them have become big landlords in other Nashville suburbs, and in neighborhoods outside Atlanta, Phoenix and a couple dozen other metropolitan areas. All told, big investors have spent some $40 billion buying about 200,000 houses, renovating them and building rental-management businesses, estimates real-estate research firm Green Street Advisors LLC. Still, they own less than 2% of all U.S. rental homes, according to Green Street.

The buying spree amounts to a huge bet that the homeownership rate, which currently is hovering around a five-decade low, will stay low and that rents will continue to rise. The investors also are wagering that many people no longer see owning a home as an essential part of the American dream.

“The rental stigma has really subsided,” says Michael Cook, operations chief at closely held Streetlane Homes, which owns about 4,000 houses. “People are realizing that houses are not necessarily the best places to store wealth.”

These companies are banking on new construction continuing to lag demand, thus contributing to a tight market that leads to higher prices, and for many middle-income families to continue to struggle to meet the requirements for making their first purchase.

Mr. Mullen said Progress was betting that much of the middle class will have to rent if it wants to maintain the suburban lifestyle of the past. He said Progress offers “aspirational living experience” to tenants he described as typically about 38 years old and married, with a child or two, annual income of about $88,000, less-than-stellar FICO credit scores of 665 and $45,000 of debt. “Our residents are quite a ways away from being able to purchase a home,” he said.

Home prices in many markets are nearing their 2006 peaks, prompting some investors who bought homes during the downturn to flip them at a profit. But the big buy-to-rent investors are hanging on to their properties and looking to grow.

The apartment industry has obviously benefited from these same factors, leading to an incredible run of rising rents and declining vacancies, but the SFH investment companies offer a new form of competition for renters that could prove an issue for apartment managers once the rental market cools off and the number of renters stalls or falls.