Last year was a record year for single-family rental (SFR) construction, and 2022 may well see more of the same. There's a good reason for that: The market is there, and the appeal is broad.
"There is a misconception that the majority of renters are millennials when, in reality, you have everyone -- including college students, empty nesters, families with kids, pet owners, and those wanting to downsize," Shannon Hersker, capital markets group director of Walker & Dunlop, told RentCafe in a new report titled "Built-to-Rent Homes Expected to Hit All-Time High in 2022, Fueled by Need for Space and Privacy."
The article contains several lists, including which metro markets and individual cities have the largest SFR inventories right now. They're all across the country, and what they have in common are thriving job markets.
That also means these areas likely have a lot of new people moving in and searching for homes, adding pressure to home prices. Indeed, rising home prices and interest rates have hampered affordability for many would-be homebuyers, but the relative privacy, space, and neighborhood feel that SFRs can provide are driving demand in that sector, too, and construction is soaring.
RentCafe says an estimated 13,910 built-to-rent homes are under construction in total in all the markets where data is available to the listing service's sister company, Yardi Matrix. That doubles the 6,740 built in 2021, a sharp jump from the 4,000 to 4,900 built each year nationally from 2016 to 2020.
Heading for the 'burbs
RentCafe says a recent survey of 3,300 renters from its listing site found 78% were interested in communities of single-family homes. The report says that if they act on that interest, they'll find about 720 such communities offering about 90,000 units, including detached single-family homes and an array of duplexes, townhomes, and quadruplexes.
According to RentCafe, searches for "homes for rent" on rentcafe.com tripled last year from the year before, and suburban areas -- with low-density land available but still relatively close to the big city -- account for 61% of such rental home communities.
Fast-growing Phoenix tops the list of the top 5 metro areas
The list of metro areas with the most SFRs in place right now includes these top five:
- Phoenix -- 6,420
- Columbus, Ohio -- 4,780
- Dallas -- 4,290
- Houston -- 3,600
- Riverside, California -- 3,540
And these cities have the most SFRs within their city limits:
- Las Vegas -- 2,250
- Houston -- 1,620
- Tucson -- 1,320
- Phoenix -- 1,280
- Dallas -- 1,270
How individual investors can get involved
Sunbelt cities dominate this list, but growth is not exclusive to that big swath of our country.
Take Columbus, for instance. One of its suburbs, Westerville is No. 6 on the list of cities with the most SFRs at 1,160. That side of Ohio's capital city region is about to see a whole lot more growth. Intel has just announced and is already hiring for a pair of new chip factories -- a $20 billion investment that's expected to create 3,000 jobs with an average wage of $135,000 a year.
The spin-off economic activity from something this massive will be considerable, and the demand for housing stock will just become that much more intense. Of course, a project like this hardly flies under the radar, so the savvy real estate investor will also need to sniff out the less-obvious factors driving the individual market they choose.
Or you can let the big guys do it. Publicly traded homebuilders and SFR specialists -- two sectors that have forged some interesting partnerships -- will be happy to sell you some stock of your own. Consider Invitation Homes and PulteGroup: The former is the largest SFR real estate investment trust (REIT), and the latter is one of the nation's largest homebuilders. The two have partnered on a deal for the former to buy 7,500 new SFRs from the latter through 2025.
Home is where the opportunities are
There are more residential REITs to consider, including multifamily specialists. Remember, apartment growth is happening for the same reason in those same hot markets. And you also could consider UMH Properties, a REIT specializing in manufactured home communities.
Of course, not all SFRs are in planned communities. In every market, the opportunity exists to buy your own rental property and build wealth that way or even to purchase vacant land to build your own. However, the liquidity, flexibility, and performance prospects of selectively investing in REIT and homebuilder stocks do make them hard to resist, Foolishly speaking.
I mean, it's not like needing a place to live is just a fad, right?