In part one of our three-part series, we explored the fundamental shifts in investment yields and economic efficiencies that have propelled single-family rentals (SFRs) into the spotlight as an attractive asset class. In this second installment, we will delve into the socioeconomic factors that have further fueled the rise of SFRs and solidified their position as a compelling investment opportunity.
The past decade has witnessed significant changes in demographic trends, housing preferences, and affordability challenges that have reshaped the housing market. These shifts have altered how people live and created a unique set of circumstances that have made SFRs an increasingly desirable option for both renters and investors.
The supply and demand dynamics of SFRs have evolved significantly, driven by several key factors impacting the real estate market. On the supply side, in recent years, there has been a push for the construction of single-family rentals, addressing the shortage in housing supply that has intensified in recent years. Notably, the national SFR stock has increased by 40% since 2019 and doubled since 2014. Nevertheless, with a decade of undersupply, demand continues to outpace the supply of single-family homes.
While the undersupply of homes is well documented, there is also growing research on the demand side highlighting preferences for SFRs among millennials and baby boomers for the flexibility and lower maintenance responsibilities that come with renting. Rental home demand remains exceedingly high as young professionals may seek mobility due to new job opportunities or family growth, while older adults might downsize or prefer to avoid committing to the maintenance costs that a home requires.
Furthermore, there has been a generational divide as illuminated in a recent report casting a light on the evolving preferences across age groups. The report’s insights into baby boomers' inclination to age in place within homes that have not seen significant updates for decades starkly contrasts with millennials' growing despondency towards achieving homeownership under traditional paradigms leading to a widening gap in homeownership across age groups.
This dichotomy highlights the role of SFR investors and property managers in bridging the gap between the dream and reality of homeownership for younger generations. With millennials driving much of the demand, they seek more affordable alternatives to homeownership but have grown accustomed to the modern finishes and care-free lifestyle of renting apartments. Institutional landlords can fill a gap in purchasing outdated or unkept homes from baby boomers and turning them into rent-ready, institutionally managed homes that appeal to millennials as well as baby boomers looking to downsize.
Plotify’s Takeaways:
- A decade of demographic shifts, evolving housing preferences, and affordability issues have elevated single-family rentals (SFRs) as a key housing solution for millennials and baby boomers.
- The national SFR stock has increased significantly, yet a persistent undersupply amid growing demand
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