Housing policy experts are convening next week at the J. Ronald Terwilliger Foundation’s annual conference in Detroit to explore answers to a simple question: how do we create a housing economy that best serves America’s evolving housing needs?
We know that Americans’ aspirations haven’t changed. Millions of Americans continue to want and plan to own a home, just like generations before.
But as a country, our housing needs are changing. Millennials are delaying major life decisions, like getting married, having kids and buying a home; or, they are constrained financially by student loan debt. Baby boomers are looking to retire and downsize, or don’t want to be tied down by a home or a mortgage. And many Americans are continuing to rebuild their credit in the aftermath of the financial crisis and can’t easily get a mortgage.
As a result of these demographic and cultural shifts, rental demand is surging. According to a 2016 report from Green Street Advisors, 3.9 million new renter households will come to market over the next five years.
We can’t ignore this reality; nor can we continue to push a “homeownership at all costs” mentality and expect our housing economy to be able to meet the needs of our citizens.
Rather, we need to work together to build a stronger, more diverse housing economy that works for all Americans – one that opens doors to opportunity, not barriers to prosperity. That can only be achieved if we have a vibrant, liquid housing market that provides both access and choice.
Rental housing is a critical part of this equation, offering an array of options to meet the diverse range of America’s housing needs. Most people tend to picture apartment living when they think of rental housing and are surprised to learn that single-family homes comprise a considerable percentage of the rental market. Today, there are approximately 15.7 million single-family homes for rent—37 percent of available rental stock—that offer families access to a more suburban lifestyle, often in safe neighborhoods with good schools that would otherwise be out of reach.
Approximately 200,000 of these homes, or two percent of the overall market, are professionally managed by institutional investors/owners. By comparison, institutional investors own 55 percent of multi-family rental units.
Despite our small but growing market share, some in the housing industry have chosen to blame the professionally managed single-family rental market for the demand changes taking place in the housing market. Or worse, for the challenges facing first-time homebuyers.
Opposition to the recent decisions by Fannie Mae and Freddie Mac to support the single-family rental market has perpetuated a misguided view that government-sponsored enterprises’ support of the single-family rental home market runs counter to the goal of helping homebuyers.
This isn’t a zero-sum game — the GSEs don’t have to choose between supporting homeownership and supporting renters; they can and should do both. We know from our own data that the majority of our residents plan to buy a home in the future. Supporting their housing decision today can help them achieve that goal.
In some cases, opposition to the single-family rental industry is animated by the misconception that institutional owners are competing with — and crowding out — first-time homebuyers. This is wrong on several fronts. First, institutional investors are not buying a significant portion of homes directly off of the MLS. Today, SFR owners’ purchasing is limited to a handful of markets and has slowed considerably from its peak, and it remains a very small part of the overall market.
Institutional SFR owners will never pay the same amount as a first-time homebuyer for the same property. To the extent our members do purchase homes from MLS or MRIS databases, their business model requires them to purchase at a discount from the fair market value to meet their financial performance metrics. If other buyers are willing to pay fair market value, they will beat our member companies every time. Additionally, our members buy homes that require significant repair and rehab — homes that would be unattractive to first-time homebuyers and oftentimes do not even qualify for financing.
First-time homebuyers are indeed challenged in the market, but not because they are competing with deep pocketed investors. Instead, there are larger market forces at play: first, housing supply is at an all-time low, meaning there are fewer homes to purchase and not enough to meet demand; and second, home prices are at record highs, pricing many first-time homebuyers out of the market altogether.
Thus, for a wide variety of reasons, many Americans are choosing to rent instead of buy in today’s market. Some see it as a lifestyle choice; others see it as a more flexible alternative to homeownership, including military families and others who relocate frequently for job opportunities. Our members have expanded the options available to working families, creating a market of professionally-maintained and managed homes that offer residents the benefits and conveniences they desire.
The SFR market is not a bet against homeownership – it is simply one alternative along the spectrum of housing options that should be available to Americans. Many of our residents hope to one day own their own home, and our homes are a stepping stone to that goal. Our industry believes that Americans should be supported and have access to quality housing, no matter where they are on the continuum of renting or owning. By working together to foster a diverse housing economy that provides more choices, not less, we can deliver on this promise.