The single-family rental (SFR) market is seeing a dramatic increase in interest and growth, with changes brought on by COVID-19 emphasizing the need for a broader diversity of rental housing, according to a new report prepared jointly by ULI and RCLCO.
The report, Low-Density Rental Housing in America, builds on the analysis of last year’s ULI/RCLCO report Family Renter Housing, which reported that those in the millennial generation are starting families and in need of space. SFRs are a particularly intriguing option for these new family units because they generally have added amenity offerings, such as a clubhouse, a fitness center, or sports courts, and are managed much like apartment homes. COVID-19 has accelerated the appeal of this housing type because an ability to work remotely has meant millennials preparing for a new family are looking at flexible options that allow them to live somewhere new while remaining untethered as homeowners.
Low-Density Rental Housing in America is the first report that codifies the SFR market’s language, product types, and differentiating characteristics in this rapidly expanding and evolving market where companies are employing various strategies and product types, positioning, and locations.
The report looks at three general ownership models and structures that define the three product types of SFRs:
- Small-scale investors/owners. Representing over 97 percent of the existing market, small-scale investors generally own few properties and lack the scale for operating and marketing efficiencies. Their listings are typically available at online marketplaces. The main difference between small-scale investment stock and aggregated portfolios is the diversity of inventory quality.
- Institutional SFR aggregators/scattered site. Representing the initial institutionalization of SFRs, these businesses aggregated homes across various markets and states following the Great Recession. These partners work with homebuilders to purchase blocks of new-construction homes in bulk to add to their portfolios. This reduces market risks for homebuilders while allowing institutional aggregators the scale needed for capital deployment.
- Purpose-built SFR communities/build-for-rent. The newest of the three categories, this segment includes communities specifically designed and dedicated to SFR housing. These communities incorporate consistent branding, housing quality, and vintage, and function much like an apartment complex, only for single-family homes.
“Single-family rental homes have long played an essential role in meeting the housing needs of American workers,” says Christopher Ptomey, executive director of the ULI Terwilliger Center for Housing.
“The trend toward purpose-built SFR housing has accelerated over the past decade, providing new options for meeting growing consumer demand for larger units, often outside of more densely populated urban cores. Low-density rental development is already enabling cities to better meet the evolving housing demands of moderate-income households and holds the long-term potential to improve housing affordability and access to high-performing neighborhoods through the addition of lower-cost units appropriately scaled and designed for such locations.”
Says Todd LaRue, managing director at RCLCO, “During the course of this research effort, RCLCO was not surprised by the tremendous market depth for low- to mid-density rental housing, but the variety of products and concepts offered today appeal to a wide array of household types, suggesting the market for the product is as broad as it is deep. And many of these households will be different than those traditionally expected to be in rental housing—and that is a big change in how we think about housing going forward.”
The Low-Density Rental Housing in America report also outlines key characteristics of each purpose-built SFR model, with project profiles demonstrating the success of each one:
- Horizontal multifamily. Composed of dense one-story single-family detached (SFD) units, as well as townhouses and duplexes for the smallest units, horizontal multifamily communities can achieve densities of nine to 14 dwelling units per acre (22 to 34 per ha). These communities generally offer 100 to 150 units. They are typically developed on land zoned for commercial or multifamily uses, given the density and construction configuration of the project.
- Build-for-rent single-family attached. These housing options encompass a broad spectrum of community configurations, unit types, and sizes. Units at these communities generally provide two or more bedrooms, and are larger on average than multifamily units but smaller than traditional single-family homes.
- Build-for-rent single-family detached. This housing option is the most similar to SFR units owned by institutional aggregators and small-scale investors. The communities are predominantly located in suburban locations and platted as individual residential lots, generally provide three or more bedrooms, and are significantly larger on average than multifamily units.
Low-Density Rental Housing in America can be found on ULI’s Knowledge Finder.