SFR’s Rising Affordability Counters National Crisis

SFR’s Falling National Rental Burden

The housing recovery has been a tale of two very different outcomes. While homeownership remains a challenge for many, home prices have improved, and those who have been able to access the market for homeownership have enjoyed meaningful gains. On the other hand, renters, especially those who are renting due to economic limitations, have seen rent bills climb faster than incomes. These trends, combined with a lack of new supply to meet robust demand, have created a national affordability crisis.

Single-family rentals (SFRs), a segment which is now capturing the national spotlight, appears to be trending against the widespread housing affordability crisis. By two key measures — rent share of income and remaining income after rent — SFRs have become increasingly affordable over the course of this cycle.

The national average share of household income going toward rent in SFRs stood at 21.6% in 2010. Since then, the SFR rent share of household income has consistently fallen, sitting at 19.7% through 2017.

Covered in our recent research, as well as in the Q2 2019 Single-Family Rental Investment Trends Report, build-to-rent properties are becoming increasingly prevalent, providing more relatively affordable rental housing options.

SFR rents have continued to grow in a goldilocks range: not too fast and not too slow. From 2010 and 2017, average annual rent prices in SFR properties have increased by 2.4%, hovering between a low of 1.4% and a high of 3.0%.

Residual Income on the Rise

After accounting for rental costs, SFR households have seen a boost to their wallets. On average, SFR households had about $41,000 of income left after paying rent in 2010. In 2017, this figure stands at more than $54,000.

The amount of household income left, after accounting for SFR rents, has risen by an average of 3.7% annually between 2010 and 2017.

These encouraging trends are likely the result of several market forces at play. A balanced supply pipeline has proven effective in managing excessive rent inflation. The composition of who makes up SFR households, and their level of success in the labor market, also plays a critical role.

Obtaining a mortgage, especially for first-time homebuyers has remained difficult throughout the recovery and subsequent expansion, pushing many would-be-homeowners into SFRs. Further, the benefits of SFRs, which combine financial flexibility and location desirability, have also attracted many households who could own a home, but instead prefer to rent. Both of these factors have materially altered the nature of who makes up the average SFR household.

SFR development and investment activity have primarily sprung up adjacent to well-performing metropolitan centers where labor markets have bustled. Due to advantageous location, the advancing job prospects for an SFR household are, on average, very strong.

While the rise in SFR affordability requires further exploration, the initial conclusions are heartening. A wide spectrum of housing options, including a robust market for SFRs, allows for households to better match their preferences with available supply.

For more SFR market trends and insights, visit our SFR research page.

Note: All data is sourced from the American Community Survey (ACS), unless otherwise stated. ACS statistics are sample-based estimates of the compositional profile of the total population in the given year of data collection, and include a margin of error.