There’s a Shortage of Affordable Single-Family Rentals -- And It Has Rents Rising

By: , Contributor

Published on: Dec 11, 2019

With single-family rental inventory low, demand up, and rents on the rise, investors have a prime opportunity going into 2020. Here’s what you need to know to take advantage of it.

There may be a window of opportunity for investors looking to get in on the single-family rental game. According to the latest report from property data firm, CoreLogic, single-family rental (SFR) inventory is down -- and that has rent prices rising.

CoreLogic’s Single-family Rent Index has SFR rents up 3% since last year. Rents are particularly up on the lower end of the price spectrum.

Homes with rents that are 75% or less than the regional median jumped 3.8% over the year, while higher-end rentals (those priced at 125% of the region’s median rent) rose by 2.9%.

September -- the latest month CoreLogic’s data covers -- marked the 65th straight month that lower-end rentals made up the bulk of rent increases.

Rents jumped the most in the Phoenix metro, increasing 6.7% over September 2018. It was the 10th consecutive month Phoenix took the crown.

As Molly Boesel, CoreLogic’s principal economist, explains, “Low rental supply coupled with ongoing demand pushed up rents in September. Vacancy rates have fallen moderately on the national level over the last quarter -- with a 0.3% decrease in the third quarter of 2019 compared to a year earlier -- and more significantly in select metro areas ... Phoenix experienced the largest decrease in vacancy rates at 2.6%, which helped drive its rent growth to the top of the nation in September.”

Here are other cities where rents are on the rise:

METRO YEAR-OVER-YEAR SFR RENT INCREASE
Phoenix, Arizona 6.7%
Las Vegas, Nevada 5.8%
Seattle, Washington 5.5%
Tucson, Arizona 4.6%
Charlotte, North Carolina 4%
Austin, Texas 3.5%
Orlando, Florida 3.4%
Atlanta, Georgia 3.4%
Boston, Massachusetts 3.2%
Los Angeles, California 3.2%

More single-family properties are in the works

Obviously, there’s an opportunity for investors to create more affordably-priced single-family rentals. And according to the latest data from the U.S. Census Bureau, there may soon be more properties to do that with.

Housing starts were up 8.5% in October, and building permits rose 14.1%, hitting their highest level since 2007. The jump was primarily driven by an uptick in single-family housing permits, which rose 3.2% over the year. It was the largest share of single-family permits in more than 12 years.

Permits were up the most in the Northeast and South, while actual starts rose most in the West. By volume, the South had the most permits by volume at 776,000.

According to the National Association of Home Builders, construction usually begins on permitted homes within two months of issuance. Final construction of those homes could take up to six months more, meaning an influx of single-family properties is likely on the horizon for mid- to late next year.

The bottom line

The moral of the story? With the market’s rising rents, more new construction on the horizon, and high demand for single-family rentals, there’s a window of opportunity for investors. Throw in the prime winter homebuying conditions we’re seeing, and 2020 may just be the year to buy a new home and expand your portfolio.

Become A Mogul Today

Real estate is one of the most reliable and powerful ways to grow your wealth - but deciding where to start can be paralyzing.

That's why we launched Mogul, a breakthrough service designed to help you take advantage of this critical asset class. Mogul members receive investing alerts, tax optimization strategies, and access to exclusive events and webinars. Past alerts have included investments with projected IRRs (internal rates of return) of 16.1%, 19.4%, even 23.9%.

Join the waitlist for Mogul here and receive a complimentary 40-page guide on a NEW way to build wealth. Join waitlist now.

FREE - Guide To Real Estate Investing

The Motley Fool has a disclosure policy.