As rising rates deter families from buying, being a rentier looks as appealing as ever
Save time by listening to our audio articles as you multitaskOne group of buyers, however, remains unfazed: Wall Street. What began as an opportunistic bet on single-family housing during America’s subprime crash of 2007-10 has morphed into a mainstream asset class. Today all sorts of institutions—from private-equity firms to insurers and pension funds—are piling into the sector. They are unlikely to vacate it: being a rentier looks as appealing as ever.
One reason is that demand for rental homes will jump as home ownership gets costlier. American savers need on average $15,000 more than they did before the pandemic to afford a 10% downpayment. Higher borrowing costs are forcing millennials nearing their peak buying years into longer leases. This coincides with a larger trend fuelled by covid-19: a shift from flats towards suburban homes with gardens and office space—which many households cannot afford and must therefore rent.
A scarcity of housing will also help the rentiers. Despite a recent surge in investment, the market for single-family homes remains woefully undersupplied. America is short more than 5m homes for buyers and renters. England has more than 28 prospective tenants for every available property. Big institutions are building their way out of constrained supply.
This helps explain the sector’s resilience. While landlords of shops, bars and restaurants struggled to collect payments at the start of the pandemic, strong demand for single-family homes pushed rents through the roof. In America, they rose by 13% in the 12 months to March 2022. In Miami, they jumped by more than 40%. Rents held up relatively well during the global financial crisis; in some markets they even grew . That is helping to reassure investors as a recession looms.
There are risks. Asset prices will be sensitive to higher rates, particularly if inflation stays high. Yet it is the smallest landlords, with five homes or fewer, who look most exposed. They own nearly nine in ten single-family rental homes in America. John Burns Real Estate Consulting, a research firm, reckons smaller investors bought 28% of all homes sold in the country during the first quarter of 2022, compared with 6% for investors with more than ten homes.
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