Single-Family Homes Play a Bigger Role in the Rental Market
The growing popularity of single-family rentals as a housing option for Millennials is skewing the multifamily inventory toward amenity-rich larger buildings. At the same time, the trend is helping consolidate smaller apartment assets.
How Big is the U.S. Rental Market?
As Millennials settle into steady careers and surpass the Baby Boomers in size, their preference for real estate is causing fundamental shifts in the U.S. rental market.
Typically associated with ownership, single-family rentals are now increasingly popular with older Millennials with families, often looking for more space without the mortgage attached. However, as this phenomenon strengthens, the multifamily inventory is skewing toward amenity-rich larger buildings, which are also popular with younger renters.
As shown below, based on the latest data release from the Census Bureau’s American Community Survey (ACS), there were nearly 42 million rental units in the United States at the end of 2016. These rental units accounted for about 35% of the overall U.S. housing inventory.
Of these, multifamily buildings (5+ units) taken together constituted 45% of all rental units. This was followed by single-family rentals at 36%, and duplex-quadruplex units at 19%.
Units in small apartment buildings comprised 32% of the overall US rental inventory. Large buildings formed a share of 13%.
Consolidation within the Multifamily Space
As shown below, the 2015-2016 year-over-year percent growth for multifamily units at 1% was double that of single-family rentals, while duplex-quadruplex units shrank further.
At the same time, the 2015-2016 percent growth for multifamily units was significantly slower compared to the previous year (2014 to 2015) at 2.3%, while being faster for single-family rentals.
The recent relative slowing down of the multifamily segment is due to the ongoing shift toward large apartment buildings and away from smaller properties.
As shown below, while inventory in large buildings grew by 5.4% over 2015 to 2016, small buildings showed a slight decline of 0.7% over this time.
For multifamily investors and property managers, the slight slowdown in small apartment building unit growth should be viewed positively. The slowdown represents the ongoing consolidation process within this segment, with the market retaining better-performing assets and a quality inventory portfolio. This is reflected in increasing rents, which we will examine in a future post.