Single-family rental housing has many of the amenities that surged to the top of home buyers’ wish lists during the pandemic.
And Walker & Dunlop, a real estate finance firm, estimates growth in this market in the United States will outpace other commercial sectors like condos and apartments, office, retail, and storage over the next several years.
Larger living areas and more outdoor space often come with single-family rental developments, while retaining some of the amenities like fitness facilities and entertainment rooms found in an apartment building downtown. They also avoid the financial headache and stress of bidding wars, maintenance, and a hefty down payment.
Not only does this make the single-family rental-home sector appeal as an affordable housing option, its latest iteration — increasingly backed by institutional investors — also appeals to millennials and other generations wanting more space without the financial burden of owning a home.
Single-family rents were up nearly 11 percent nationally in October of last year from the year prior, according to property data firm CoreLogic — a sign that demand is up for this type of product during the pandemic. While Sun Belt cities dominated on rent growth, Boston still showed the 15th-highest increase.
“The big thing right now that’s pretty obvious is just this crazy rise in home prices,” said Whitney Airgood-Obrycki, a research associate at the Joint Center for Housing Studies of Harvard University. “The very low inventory is just completely shutting people out of homeownership who otherwise would have bought.”
But several key ingredients to the single-family rental sector are missing in a housing market like Boston. These developments are typically found in the Sun Belt, stretching from California to North Carolina, where land is widely available and significantly more affordable than in Greater Boston. The housing development conversation in Greater Boston has also been more about density in recent years and finding ways to build as many new units as possible in a stretch of the country that’s largely already developed.
But don’t rule out its future.
Boston is a city packed with college graduates saddled with student loan debt, which doesn’t leave a lot of room to save up for a down payment on a first home.
Single-family rental housing might conjure up images of hundreds of detached houses in a master-planned community, which has become a highly popular vehicle for this sector to be developed. But duplex and town house rental developments — sometimes called horizontal multifamily projects — also are considered single-family homes because the same renter occupies all floors of one unstacked unit.
These denser arrangements are better suited for urban and suburban locations where tall apartment or condo towers aren’t likely to get approved.
“Nationally, we are seeing the largest growth in this product type in Sun Belt markets, where land is plentiful and zoning is favorable,” said Kelly Mangold, a principal at real estate consulting firm RCLCO. “But even in areas in the Northeast, there are opportunities to develop single-family rental communities — but perhaps in more dense configurations such as attached homes or horizontal multifamily products.”
The demand for single-family rentals appears to counter housing advocates and the City of Boston’s efforts to tackle the region’s housing shortage. The city has a target of adding 69,000 new housing units as part of its “Housing a Changing City: Boston 2030″ plan — and it’s a lot easier to reach that target with densely configured apartment and condo buildings rather than single-family homes.
But don’t wave a white flag of defeat just yet for single-family rentals.
“The pandemic essentially poured gasoline on that shift out of urban [centers] and out of multifamily apartments,” Richard Ross, CEO of Quinn Residences, an Atlanta-based single-family rental-home developer, said in December at the National Association of Real Estate Editors conference.
Quinn Residences’ focus may be on the South, but the urban exodus to suburban housing has been a national trend during the pandemic — one that accelerated hyper-competitive bidding wars in Boston’s suburbs.
US home values increased a little more than 19 percent in the last year and are expected to surge an additional 14.3 percent in the next year, according to Zillow, a home search website. Low inventory can send home prices even higher. “The median price of a Massachusetts single-family house sold in November was $510,000, according to real estate analytics firm The Warren Group — a record high for the month,” Jon Gorey reported for Boston.com. “That marked a 10.9 percent increase from a year ago and an astonishing 30.4 percent jump from November 2019, when the typical Massachusetts house sold for $391,000.”
The national for-sale home inventory hit an all-time low late last year, according to Redfin, a real estate brokerage network. That’s playing out locally, too: “On a given day in November, there were just 3,848 single-family homes for sale statewide, according to the Massachusetts Association of Realtors. That marked a 45.5 percent drop from what was already a tight market in November 2020, when there were 7,058 active listings,” Gorey reported.
That shortage is particularly acute in vacation areas like Cape Cod. There were fewer than 300 single-family homes for sale on Cape Cod the first week of this month, according to the Cape Cod & Islands Association of Realtors. That figure exceeded more than 2,700 single-family homes the same week in 2017.
That’s fuel for developers to consider more rental housing, assuming it can make its way through a planning board.
“There’s this play between supply and demand that suggests that higher-income renters and some households are just renting longer because they want to,” Airgood-Obrycki said. “We saw this after the Great Recession.”
Single-family rental demand after the Great Recession was met largely by converting for-sale housing to rentals. But the resilience of this type of housing through downturns has US developers intentionally building homes for the rental market.
Purpose-built, single-family rental homes currently account for about 5 percent of all new homes developed in the United States, according to Walker & Dunlop. The entire single-family home rental market, which also includes existing homes that were purchased and later converted for rent, accounted for nearly 12 percent of all US housing units at the end of 2019.
It may not seem like a lot, but the sector is poised for liftoff.
The RCLCO report estimates that an additional 2.5 million single-family homes will be needed over the next decade to meet the demand of prospective renters who cannot afford to buy a home, who are relocating to a new city, or who simply desire the space a single-family can provide without the demands of homeownership.
Investors are pouring in, too: Quinn Residences raised more than $750 million in equity from groups like Conversant Capital and Monarch Alternative Capital. That’s well above the $600 million leaders were targeting.
But popularity and investor interest aren’t fueling a jump in single-family rental inventory in New England. RCLCO highlighted three major single-family rental developments in the region among the handful: Norwest Woods — which includes town house units — in Norwood and two Connecticut apartment communities with a significant number of town house units and attached units with individual entries. The report overlooks others, including Halstead Beverly, which offers one-, two-, and three-bedroom town homes.
Single-family rental housing isn’t a total anomaly in Greater Boston, but it primarily constitutes individual landlords renting out a single home. The number of these types of units within Boston city limits has hovered at 5,000 for several years. A spokesperson for the City of Boston said there aren’t any pending proposals for single-family rental developments.
“A lot of these may be off-market,” said DJ Gendreau, a realtor with Douglas Elliman Real Estate. “I’ve known of a number that were investment properties that the owners would consider renting.”
While typical single-family rentals don’t create the housing density advocates are clamoring for, there are project types that offer significantly more density than one would find in a detached single-family rental project in the Sun Belt.
Horizontal multifamily projects and single-family attached developments share similarities with typical apartment or condo developments in terms of unit size, but RCLCO’s Mangold recognizes there are benefits as well as challenges ahead in boosting this kind of housing in Massachusetts.
“While regulatory and zoning restrictions may hinder single-family product type in some locations to promote density, there are also many other jurisdictions when the opposite is the case — including many areas in Massachusetts where single-family use is the only permitted type,” she said.
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