Single-Family Rental: Opportunities in 'Horizontal Multifamily'

Michael Tucker mtucker@mba.org

February 21, 2019


SAN DIEGO--By some measures more Americans live in single-family rental properties than in multifamily apartment properties and the sector is poised for further growth, analysts said here at the recent MBA CREF/Multifamily Housing Convention & Expo.

"When you think about multifamily, most people think about the properties that Fannie Mae, Freddie Mac and FHA are focused on, but that's really a small component of the larger rental space," said Stacey Berger, Executive Vice President with PNC Real Estate, Pittsburgh. "It is significantly smaller than SFR."

Mortgage Bankers Association Vice President of Commercial Real Estate Research Jamie Woodwell said some analysts consider single-family rental properties "horizontal multifamily." He said 64 percent of U.S. households own the place they live while 35 percent rent. But 71 percent of U.S. households live in either attached or detached single-unit housing. "If you just take single-family attached and detached renter households, in 2017 about 14 percent of all U.S. households were in single-family rental properties," he said.

Different firms define the SFR sector differently. CoreVest American Finance Chief Financial Officer Chris Hoeffel said his firm defines SFR properties as not only freestanding homes but also two- to nine-unit buildings. "If you look at it that way, there are more people living in SFR than in what many traditionally consider multifamily," he said. "In 35 states SFR represents about a third of all rental housing. So it's a really big market across the country. It's enormous. Given that, it's surprising how underbanked SFR has been for decades."

And the SFR market could grow more if interest rates continue to increase. Michael Miller, Chief Marketing Officer with 5 Arch, Irvine, Calif., said just over 60 percent of people can currently afford a $200,000 mortgage, but if interest rates were to increase to 6 percent, that number would drop to only 16 percent that could afford monthly payments on a mortgage that size. "So, suddenly you would have huge velocity in this asset class," he said. "And if we move into a rising rate environment, think about what might happen."

Hoeffel said SFR rents did not decline even during the Great Recession. "Multifamily rents did go negative but not SFR rents," he said. "I don't want to say the sector is recession-proof, but it did perform very well in the last crisis--which was a housing crisis--because I think it absorbed demand from other housing sectors that were overbuilt or over-leveraged at that point."

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