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Flexibility Is a Key Driver for Booming Single-Family Rental Market

for-rent-twoOne of the key drivers of the booming single-family rental market is the desire for flexibility, and it's not just millennials that are choosing to rent a home over buying.

The SFR market has not only become an accepted form of institutional investment, but also an accepted form of consumer housing, according to Mission Capital Advisors Principal David Tobin. The labor market has improved as the economy has rebounded, and people are moving from the center of the country to the coasts to places that have experienced robust job growth like New York, Florida, and Los Angeles—but they want to be able to move around without being tied down to a mortgage. Some like the ability to move from city to city, while others may be tied to a city but either can't afford a home or can't afford the downpayment on a mortgage and would rather live in a detached single-family home than a multifamily establishment.

"People really want flexibility with respect to housing so they can focus on careers and not have a mortgage and a house hanging over their head," Tobin said. "The workforce is a lot more mobile now."

Not only is flexibility a key when consumers are considering whether to rent or buy, but timing is everything—and if timing is off, the consumer can find himself in an undesirable situation that he cannot get out of. That is another reason why renting is becoming a more attractive option than buying to many.

"Owning a home is the greatest investment that you'll ever make, but it's not such a priority for millennials and even for generation Xers," Tobin said. "If you can time the market, you can make a lot of money owning a home. But if you don’t time the market, you can not only lose a lot of money, but you can be stuck in a house or a town or an area of the country where you can't move. So I think what people have known in larger cities all along about renting is now becoming true all around the country, and that is that living in a house is nice but having somebody else be responsible for the upkeep is even nicer."

"People really want flexibility with respect to housing so they can focus on careers and not have a mortgage and a house hanging over their head."

The fact that the subprime and alt-a lending markets have not come back yet could also be a driver of single-family rental growth, since many consumers who want to own a home are having trouble coming up with the often tens of thousands needed for a downpayment on a mortgage loan.

"So renting becomes an option if you want to be in a house, until we have more financing products available to consumers, you're probably going to continue to have a decline in the rate of homeownership," Tobin said. "We've kind of had since, let's say 1980, a 35-year decline in interest rates and a corresponding increase in asset values and home prices. At some point, that's going to change, but who knows? Maybe it doesn't change in our lifetime. That's going to impact housing values negatively."

Growth of the SFR market might slow down, but it will likely increase in proportion with the population, Tobin said. If the population grows at the rate of 1 to 2 percent a year, that will calculate to between 3 and 6 million people.

"So there always needs to be a continuation of new housing stock," Tobin said. "It's a great place for foreclosed inventory to go and I think the other trend tat's going to become more pronounced as the big operators cannot purchase foreclosed real estate is consolidating mom and pop owners of rental portfolios through the acquisition in bulk in the markets like Colony and Blackstone are targeting. I think there will also be an emergence of mid-tier operators who specialize in a particular geography or geographies, and they'll be differentiating products."

 

 

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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