Worldwide bond yields are at historic lows, and investors need yield.
Inflation is on the rise, and most investors view rental homes as an inflation hedge.
Record high rent growth (see chart below) is supported by high occupancy rates.
Renters have demonstrated that they are willing to pay a premium to rent in a new home neighborhood managed by a professional landlord. While the news headlines and NIMBYs are busy bashing institutional owners, many renters are clearly enjoying a better rental experience living with renter (instead of homeowner) neighbors and having no fear that their landlord might decide to sell the home sometime soon. Breaking it out by year, below is the growth in capital announcements from 2020–present:
2020: $3 billion
2021: $45 billion
2022 (year to date): $5 billion
Note: $50 billion translates into 125,000 homes at today’s median resale value of about $400,000. Since some of this is only the equity investment and excludes the debt (and we know of far more than this that is not public info), we believe the number of homes that could be built and/or purchased far exceeds this. 125,000 homes would be less than 1% of today’s single-family rental homes.
Single-family rental and build-for-rent (contiguous rental home communities) continue to appeal to investors looking for yield and an inflation hedge. Homes should be a hedge against inflation because the cost of their materials is rising while rents should grow along with inflation as well. Also, rental homes have been historically less volatile during housing booms and busts.
Recent rent growth has varied a lot by market. While the country has averaged 4.6% rent growth, rents in the 20 largest single-family rental markets have increased 10% YOY, another reason why investors flock to the space.
New lease effective rents continue to rise, with several popular in-migration markets producing double-digit rent growth over the last year, according to our Burns Single-Family Rent Index™ (BSFRI).
Top SFR markets with double-digit new lease effective rent growth include:
Phoenix (+12% YOY)
Charlotte (+11% YOY)
Las Vegas (+11% YOY)
Atlanta (+10% YOY)
Jacksonville (+10% YOY)
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Source: John Burns Real Estate Consulting