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Investments

Rental demand to grow by 6.6 million through 2016

The demand for rental housing is expected grow by nearly 6.6 million units through 2016, with about 4.2 million new renters attributing to the total.

Many factors will play into the rental housing growth trend including more inventory going into rentals as well as an attractive single-family rental sector for large institutional grade investors – national providers that are present in multiple states and/or cities, said chief marketing officer Jim Warren of FirstService Residential Realty.

FirstService Residential Realty is the largest, residential single-family property management company in North America. The company manages residential, ranging from affordable housing to luxury multifamily communities.

As institutional grade investors make a comeback to the marketplace, leverage and securitization will naturally demand better operations as well as more structured operations. 

Moody’s Investor Services released a report rating bonds in the real estate-owned to rental space on a less than satisfactory level due to the a lack of third party operations available and warns that the asset class may pose risk not typically found in traditional multifamily and single-family securitizations.

"I think the leverage is about to come — you’re going to see a lot more deals done this year — but securitization is the accelerant that is under that and I think that’s the other growth within the property management side," Warren said.

Warren also noted institutional investors are focused on markets that have “low hanging fruit right outside the gate” — states that experienced severe downturn during the housing crisis, but are moving firmly up the ranks such as Arizona, Florida, Las Vegas and Nevada.

"You’re going to see more investor activity bringing product to market and inventory going to market for tenants in the easier-to-do business markets then you will in the more challenging markets," Warren stated.

Another factor contributing to rental demand is shadow inventory and the decline in homeownership.

Barclays similarly noted in a report that homeownership fell from 69% to 65% as well as adjusted for shadow inventory to 61%.

In addition to shadow inventory, vacant homes are also a big factor in increasing rental demand, given there’s roughly 13.5 million vacant homes just on the market, according to Warren.

As a result, rent rates are expected to increase over the next two to three years, roughly between 2% and 4%, nationally.

"Just the natural fact that the property managers and the investors are going to get organic revenue growth because of market conditions makes it very attractive too," Warren said. 

Renting has also become a more attractive option and will continue to be a trend due to lack of consumer confidence and available credit to buy.

As a result, it’s become less of an option for many to participate in homeownership.

"Homes used to be your retirement savings plan and our father’s, our parents, they all pushed us and said 'you’ve to own your own home, pay for it and get it paid for before you retire.' I think everyone’s seen their parents take a massive hit in that asset and I think culturally, our generation looks at that and goes 'that’s not my retirement plan anymore,'" Warren said. 

cmlynski@housingwire.com

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