It’s no secret that we are experiencing an affordability crisis in the housing world. The situation has changed since the start of the pandemic; housing prices tall and mortgage rates also high. For some, the thought of ever owning a home is becoming increasingly distant, if not non-existent.
So what do people do if they can’t buy a house? They rent one.
“When you think about the affordability crisis that’s really unfolding in the U.S. today, it’s benefiting the rental market,” Laurel Durkay, head of global listed real assets at Morgan Stanley, said in the report. Interview from CNBC last week. She continued, referencing an earlier comment made by the host: “So you said it’s a shift from the American dream to a pipe dream that really provides an opportunity for landlords to fill that affordability gap.”
Institutional investors began getting into single-family rentals after the Great Financial Crisis due to many homes going into foreclosure; they bought them in bulk for cheap. While this prevented the housing market from bottoming out, they benefited enormously. Years later, they are still benefiting – only now because housing has become unaffordable.
In the second half of last year, Moody’s Analytics senior economist Ermengarde Jabir said: LuckThe single-family rental market is the “superstar of today and tomorrow” for investors.
Jabir explained it perfectly back then: People want to live in a house, they want a backyard, they want to be close to a good school district for their kids—and if it weren’t for the unprecedented and rapid decline in affordability, they might be able to get just that. “They want to achieve the traditional American dream, they may not be able to afford it, but they can afford it in single-family rentals,” Jabir said.
And that doesn’t seem to have changed.
“I think the most attractive market right now, all things considered, is going to be the single-family rental market,” Durke said from an investment perspective. She added that some apartment building sites can also be considered a good investment, but due to the recent boom in multifamily construction, especially in the Sunbelt, rents have generally remained stagnant and in some cases have even fallen. Rents are still significantly higher than before the pandemic, but renting will be cheaper than buying for years, according to Capital Economics, especially as home prices hit record highs nearly every month.
When we talk about landlords, we’re mostly talking about institutional landlords (also called institutional operators or institutional investors; take your pick). Durkay mentioned Las Vegas REIT American Homes 4 Rentals, which it said manages about 60,000 homes and is also a developer of single-family homes. “They were one of the first institutional players to start building single-family homes exclusively for rental purposes, and this gives them a multi-year runway of future growth that they can benefit from while also really helping this affordability crisis.” – she said. “When you think about renting an AMH home, it is actually 25% more expensive to own a home in AMH markets.”
She didn’t go into it any further, but since Luck It has previously been reported that most estimates place institutional ownership at less than 5% of single-family rental homes and less than 1% of all single-family homes. However, this is not the whole story. For example, in Atlanta, a so-called aspirational market, Wall Street owns more than 4% of all single-family homes. This can be a significant factor in the rise in housing costs.
Durkay later mentioned AvalonBay, a multifamily real estate investment trust and one of the largest apartment owners in the United States. She said, “AvalonBay markets have a median home price of over $800,000, so the affordability of these markets is well below what you can afford. would see across the country… owning a home in their markets is about 95% more expensive than renting one.”
Here’s the thing: This is all great for investors and homebuilders. And while some believe this is good for Americans too because they can rent and live in the houses they want, they still rent houses because they can’t afford to buy. Owning your own home is a core tenet of the American dream, and in the current climate, it’s not so cut and dry.