Single Family Home Rental Market Lures Institutional Investors
A recent Wall Street Journal article examined the increased participation of large investment firms in the single family home rental market. Starting with the 2008 financial crisis, when mounting foreclosures presented an attractive investment opportunity for many institutional investors, large firms have moved aggressively to acquire single family homes in cities throughout the nation. With deep pockets, institutional investors are well positioned to renovate the homes they acquire before putting them on the rental market. As the article notes, “The buying spree amounts to a huge bet that the homeownership rate, which currently is hovering around a five-decade low, will stay low and that rents will continue to rise.”
To some extent, the bet may become a self fulfilling prophecy, as investment firms soak up the scarce inventory available in desirable markets, driving up housing prices while adding to their increasingly valuable rental inventory. American Homes—which owns more than 48,000 houses nationwide—recently reported that the average household income of their rental applicants had risen to $91,000, highlighting the fact that rentership is now common among young professionals and growing families.
At Granite Capital Group, this article comes not as news, but rather as another confirmation of a trend that we have long recognized. For all three of the projects that we have pursued since forming the firm 18 months ago, the market dynamics described above are aligned to increase both property valuation and rental income over the term of our investment. As we evaluate future projects and our current portfolio, we look ahead to the end of this cycle and the beginning of the next, when the millennials—with their famously delayed household formation—finally start buying homes in larger numbers. This demand may well serve to drive prices of entry-level homes even higher, creating high demand for the properties in our portfolio.