Three Charts to Combat Common SFR Myths

Sponsored by: Madera Residential

When it comes to single-family rental investors and their impact on homeownership, the distance between narratives and realities is roughly equivalent to the distance between the earth and whatever is the second-closest star after the sun. (If you were curious, I checked, and that star’s name is Proxima Centauri, and it’s 24.9 trillion miles away.)

It’s mindboggling to me that reporters and policymakers keep earnestly repeating the same talking points (most of whom likely do not even realize how misleading they are) while ignoring basic facts reported by the official record keeper – the U.S. Census!

Here are three charts to help combat the silliness. (This is expanded from a LinkedIn post that I wrote earlier this week.)

#1: Homeownership Has Trended UP!

The U.S. homeownership rate bottomed in the modern era in Q2 2016. Since then, homeownership has trended steadily upward – up 270 bps to 65.6% as of Q1 2024, according to Census data. And while it has ticked down a hair recently as mortgage rates spiked, it’s back to its 40-year average and (more tellingly) still above the long-term median (as the average is skewed upward by the bubble era).

No, we’re not a “renter nation,” and it’d probably take a very long time to become one. And frankly, I don’t think we’ll become a majority renter nation in our lifetimes. If we even came close, I suspect we’d see more policy intervention to prop up homeownership – perhaps via more no/low-downpayment programs, portable mortgages, etc.

#2: New Homeowners Outnumbering New Renters by 4:1

For every renter household added between 2015 and 2023, the U.S. added MORE THAN FOUR homeowner households. That’s a remarkable stat no one talks about.

The totals: There are 12 million more owner-occupied housing units today than we had at the beginning of 2015, compared to 2.8 million more renter-occupied units, according to Census data. And we know that NEARLY ALL net new renter household formation has gone into apartments, not single-family homes, since 2015.

#3: We’re Adding Homeowners Far Faster than We’re Building For-Sale Homes

The U.S. built only 6 million for-sale homes between 2015 and 2023, yet added nearly 12 million new homeowners over the same time period.

How is that possible? Because millions of rental homes (nearly all single-family houses) have converted to owner-occupied homes. That means, contrary to false narratives, individual homebuyers have been (on net) outmuscling investors for market share. (And it also means that diminishing supply is a tailwind for SFR investors of all sizes.)

If you don’t believe me, maybe you’ll believe the Harvard Joint Center for Housing Studies, which came to the same conclusion in article published last year: “The number of single-family rentals then fell in more recent years as the for-sale market strengthened, and many of these homes converted back to owner occupancy.”

Here’s What Else Most SFR Commentators are Missing

Remember: Most headlines report on investor acquisitions, but not dispositions. Investors sell a lot of houses, too, and it’s net flows that matter most. It appears that many smaller “mom and pop” investors have exited over the last decade to take advantage of high sales prices and to escape the ever-intensifying headaches of property management.

So the growth in “institutional” single-family rentals has largely correlated with “mom-and-pop landlord” exits – not at the expense of individual owner-occupants.

One factor here is that investors look for market efficiencies and therefore will often lose bidding wars to individual homebuyers looking for a home, not an investment. Investors often buy homes needing substantial maintenance, and can put in the cash to modernize homes.

Bottom line is that the target of all the wrath — “institutional” investors — continue to comprise just a tiny share of the single-family market – 3% of all single-family rentals (according to John Burns Research & Consulting) and less than 1% of all single-family homes. Even the biggest players (i.e. Blackstone) represent rounding errors for housing inventory nationally.

But What About “Institutional Hotbeds” Like Atlanta?

The cynics might see this and snap back: “Oh, these are NATIONAL numbers, but my market is different.” Many might point to Atlanta, where John Burns data shows that large investors own 24% of single-family rentals. But guess what? Homeownership has still trended UP over the last decade – mirroring the national story – across all major counties in the Atlanta metro area, according to the Census.

Somehow reporters and policymakers keep ignoring the obvious: In Atlanta and elsewhere, this is a story of mom-and-pop landlord exiting at attractive sales prices (combined with massive management challenges in a market riddled by leasing fraud and eviction delays across the Atlanta region), and those exists have coincided with increased purchases by large investors AND individual homebuyers.

The Bottom Line

Yes, today’s barriers to homeownership are real. The upward trend in homeownership over the last decade could very much be in jeopardy due to high rates and sticky home prices. But let’s focus on real solutions (supply and affordability), and not distract ourselves chasing boogeyman theories about investors. That might win some social media “likes” and some votes, but it won’t solve any problems.

The truth is we need more of ALL types of housing – for sale and for rent.

I hope this can help debunk some myths on SFR … but sadly I realize some folks out there would rather peddle boogeyman conspiracy theories than confront the facts.

My Favorite Chart of the Week

Here’s What Caught My Eye Recently:

• Very touching story in The Wall Street Journal on the life of D.R. Horton, who passed away this week. Horton is a legend whose company has built 1 million homes. The story of how he started the company (included in this article) is amazing.

• Great read from Bloomberg profiling some of Blackstone’s leadership and their strategies in multifamily and commercial real estate.

• Another thoughtful piece from CRE Analyst, this one examining: “Are apartments fairly priced again?”

• Fascinating post showing that median real wages for Gen Z and Millennials are actually tracking well above Boomers at the same age. I love data that challenges conventional thinking.

• Joey Politano put together some rather shocking charts showing that California now has fewer tech jobs than it did prior to the pandemic – even while tech jobs have expanded nationally.

• Carl Whitaker posts an update on student housing, which is facing different dynamics than the conventional apartment market.

• Here’s another great post from Carl – this one examining the relationship between supply and rent movement.

• Here’s the fascinating article in the WSJ on how Wells Fargo is losing millions on its credit card partnership with Bilt.

• Vox writes about a proposal for HUD to give renters cash instead of vouchers.

• Loved this chart from Lance Lambert (using ParclLabs data) showing not just investor purchases of single-family homes, but dispositions too. It’s net flows that matter.

• Hilarious post from YIMBY account noting the irony of NIMBY protesters in New York hanging out under the shade of one tower while protesting a proposed housing project due to the “shadows” it’d create on the neighborhood.

• Conor Sen made a great point on the correlation between construction and individual market hotness/coldness in the for-sale housing market.

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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