Image: The figure shows the number and share of single-family renter households from 2001 to 2021. The number of single-family renters rose significantly from 2001 (10.9 million) to 2016 (15.2 million) before retreating slightly by 2021 (14.3 million). Single-family rentals comprise about one-third of the rental stock over time.
Investor activity in the US housing market has reached new heights, particularly in the single-family rental sector. According to the latest State of the Nation's Housing report, investors have been purchasing more lower-cost units and homes in Sunbelt markets during the pandemic. While some of these properties are eventually resold, the majority are rented out to tenants. The landscape of single-family rentals has also undergone significant changes, with a growing share being owned by business entities and medium- to large-scale rental operators. Let's dive deeper into this topic by examining eight key facts about investor activity in the single-family rental market over the past two decades.
1. Single-Family Rentals: A Substantial Part of Rental Stock
There were 10.9 million renters living in single-family homes in 2001, which accounted for nearly 30 percent of all renters. Following the Great Recession, the number of single-family rentals grew significantly, peaking at 15.2 million in 2016. However, in recent years, as the for-sale market strengthened, some of these homes were converted back to owner occupancy. Despite the declines, there were still 14.3 million single-family renter households in 2021, making up about 33 percent of all renters. This represents a net increase of 3.5 million single-family renters compared to two decades earlier.
2. Surge in Investor Activity During the Pandemic
Investors who owned three or more homes simultaneously during the prior decade started purchasing a larger share of single-family homes during the pandemic. This surge can be attributed to historically low interest rates and climbing rents. The average share of single-family homes purchased by investors remained steady at 16 percent from 2017 to 2019. However, in 2021, investor activity peaked at 28 percent of sales in the first quarter. Although it moderated in early 2023, investor purchases still accounted for 27 percent of single-family homes in the first quarter of this year.
3. Preference for Lower-Cost Homes
Investors are more inclined to purchase lower-cost homes. In the fourth quarter of 2022, they acquired nearly one-third of homes sold in the bottom third by metro area sales price, compared to only one-quarter of homes in the top third. This trend has the potential to worsen the already limited inventory of homes for sale, particularly for entry-level and moderately priced homes, as well as in markets where investor activity is prevalent.
4. Sun Belt Markets Attract Investor Activity
Investor activity is especially pronounced in Sun Belt markets that experience strong rent and population growth. For example, in the fourth quarter of 2022, investors purchased around one-third of homes sold in Miami, with similar percentages in Jacksonville and Atlanta. Although investor activity is generally lower in the Northeast and Midwest, they still account for one-fifth of home purchases in cities like Philadelphia and Cleveland. Large single-family operators tend to concentrate their portfolios in specific markets such as Atlanta, Phoenix, Dallas, Charlotte, Houston, and Tampa.
5. Growth in Investor Activity Across All Sizes, Led by Large Investors
Investor activity has grown across all investor sizes during the pandemic, but the largest growth has been observed among small investors (owning 3-10 properties) and large-scale investors (owning 1,000 or more properties). According to CoreLogic, large investors have experienced the most significant increase and have maintained the highest holdings compared to the same period in 2019.
6. Shift towards Non-Individual Ownership in Rental Properties
The ownership of rental properties has shifted away from individual ownership towards ownership by non-individual investors, such as limited partnerships, limited liability corporations, and Real Estate Investment Trusts. The share of rental properties owned by non-individual investors increased from 18 percent in 2001 to 27 percent in 2021. This shift is evident in both small- and mid-sized multifamily properties, as well as single-family rentals. In 2021, 25 percent of single-family rentals were owned by non-individual investors, compared to 17 percent two decades earlier.
7. Small Share of Rental Stock Owned by Large Operators
Contrary to popular belief, large rental operators own only a small share of the single-family rental stock. According to estimates based on Zillow data, investors with at least 1,000 properties own just 2 percent of small rental properties. In comparison, micro investors or mom and pop landlords with 1-2 units own two-thirds (66 percent) of all small rental properties.
8. Record-High Single-Family Rental Construction
Single-family rental construction reached record highs during the pandemic. Census Bureau estimates indicate that 81,000 single-family rental homes were started in 2022, accounting for 8 percent of single-family starts. This figure surpassed the previous record of 60,000 units started in the previous year. It's worth noting that these numbers likely underestimate the actual single-family construction market, as they don't account for homes sold to buyers and immediately rented out. The demand for single-family living increased during the pandemic, driven by the aging millennial cohort entering peak homebuying years. Simultaneously, rising interest rates and home prices have made homeownership less affordable, making single-family rentals an attractive option for many households.
Investor activity in the housing market has generated both opportunities and concerns. Investors may crowd out potential homebuyers, particularly in markets with high investor activity. Some large investors have also been associated with aggressive management practices, leading to higher eviction rates and rent increases. On the other hand, large single-family rental operators can provide higher value to tenants through professionalized property management, potentially increasing access to neighborhoods that traditionally exclude renters. Given the continued prevalence of single-family rental housing and increased investor activity since the start of the pandemic, this segment of the housing market warrants further study.
Image: The figure shows the number of single-family rental units started each year from 1974 to 2022. After never surpassing 50,000 rental starts previously, the number of single-family units intended for the rental market shot up to 60,000 units in 2021 and 81,000 units in 2022.
Note: This article is based on the "Housing Perspectives" report, JCHS Tabulations of US Census Bureau, American Community Survey 1-Year Estimates, and Redfin data.