The number of single-family homes built-for-rent (SFBFR) posted a small year-over-year increase for the first quarter of 2020 despite otherwise challenging market conditions. The SFBFR market has received attention as a means to add single-family inventory amid concerns over housing affordability and downpayment requirements in the for-sale market, particularly during a period involving elevated unemployment and weak wage growth. Single-family built-for-rent construction does differ in structure characteristics compared other newly-built single-family homes.
According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 8,000 single-family built-for-rent starts during the first three months of 2020. This was a slight gain over the first quarter 2019 total of 7,000. Over the last four quarters, 40,000 such homes began construction, which is lower than the 44,000 estimated SFBFR starts for the four prior quarters.
Given the small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (4.4%) remains higher than the recent historical average of 2.7% (1992-2012) but is down from the 5.8% reading registered at the start of 2013. As measured for this analysis, this class of single-family construction excludes homes that are sold to another party for rental purposes, which NAHB estimates may represent another two percent of single-family starts. The estimates in this post only include homes built and held for rental purposes.
With the onset of the Great Recession and declines in the homeownership rate, the share of built-for-rent homes increased. Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains small in terms of the total size of the building market.
Moreover, the built-for-rent pipeline of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 35% according to the 2017 American Community Survey. Approximately five million single-family homes were added to the rental stock since the Great Recession due to tenure switching. As homes age, they are more likely to be rented and the vast majority of these rental homes are owned by individual households. Thus, the primary source of single-family rental homes is not construction but the existing housing stock. In fact, from 2005 to 2015, 56% of the gains in the rental housing stock were due to increases of for-rent single-family homes.
However, a window of opportunity now exists for SFBFR construction. As some households seek lower density neighborhoods and single-family residences, but must do so from the perspective of renting, the SFBFR market will likely expand in the quarters ahead.