The past decade has seen costs for homeowners decline, yet costs for renters have increased. Today, about 11 million families (nearly one quarter) of families who rent spend more than 50 percent of their income on rent.
Approximately 59 percent of households formed in the 20-year period between 2010 and 2030 will be renters; the increasing demand will stress low vacancy rates and increase rents even further. In a report titled "Single-Family Rentals: A New Approach to Affordable Housing" by Center Creek Capital founder Dan Magder and Urban Institute Director of Housing Finance Policy Laurie Goodman released Monday, the authors say SFR should be considered by policymakers as an integral part an affordable housing strategy because of volume, location, neighborhood impact, and affordability.
Many people are unaware of the volume of SFR units scattered throughout the country, according to the report; about 14.9 million scattered-site SFR units are spread throughout the country, comprising about 35 percent of all rental housing units. The report cautions that while the press coverage surrounding institutional investors gives the impression that they are taking over the SFR space, only about 2 percent (about 300,000 units) of the existing SFR housing stock is owned by institutional investors.
"...the crises created a supply of well-located single-family houses that could, with the appropriate financing tools, be turned into family-friendly affordable rentals."
The location of most SFRs is another reason why policymakers should consider SFR as a viable affordable housing strategy, according to the report. Many SFR units are close to downtown, on bus lines or other transit routes, established suburbs, or overall more apt to be located in central cities than single-family owner-occupied homes (34 percent compared to 23 percent, according to American Housing Survey data).
"As affordable housing advocates focus on preserving existing units, single-family rentals should be recognized as an effective tool for reclaiming some of the tremendous stock of well-located formerly owner-occupied housing, thus contributing to the overall stock of affordable housing in America," Magder and Goodman wrote.
SFRs typically have a positive effect on neighborhoods because renovating them helps to preserve the housing stock and stabilize neighborhoods. SFR investors try to buy as many properties in as concentrated of an area as possible to as to make it easier to renovate and service the properties.
"Single-family rentals by themselves cannot transform a blighted area, but every house bought and renovated by a responsible SFR investor creates a recently restored property with a well-kept exterior that helps anchor and stabilize that neighborhood," Magder and Goodman said. "Even for-profit investors generally recognize the need to thoroughly renovate when they acquire the property; it saves costs downstream and increases curb appeal so investors can attract tenants and reduce vacancy costs."
Fourth, not only are SFR units affordable, but they provide value—more living space for the money compared to multi-family units, according to the report. For example, recent data from American Housing Survey showed that the average SFR unit is 1,363 square feet at a monthly cost of $974, while the average rental is $974 square feet at a monthly cost of $850. Much of the nation's SFR inventory is located in solid low-to-moderate income neighborhoods.
"The recent financial and housing crises have resulted in significantly increased demand for rental housing and a resulting increase in rents," Magder and Goodman concluded. "Affordable rentals for families are in particularly short supply. At the same time, the crises created a supply of well-located single-family houses that could, with the appropriate financing tools, be turned into family-friendly affordable rentals."
Click here to read the entire report.