Commentary Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market
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Commentary
Multifamily and Single-Family Rentals to Continue Outpacing the
Rest of the U.S. Housing Market
DBRS Morningstar DBRS Morningstar Perspective
June 14, 2021
As the U.S. economy rebounds from the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar
expects multifamily and single-family rentals to remain the fastest growing segment of the U.S. housing
Contents market. From 2000 through 2020, the inventory of combined single-family and multifamily rental units
1 DBRS Morningstar Perspective
1 Declining Mortgage Affordability and
grew by 26.0%, compared with just 21.2% for owner-occupied units, according to the U.S. Census
Falling Household Formation Bureau. Hampered by rising home prices, high debt burdens, and wage levels that haven't kept up with
4 Rental Demographics: Rising Inventory inflation, an expanding swath of households are priced out of homeownership, fueling demand for
and Grayer Occupants
6 Single-Family Rental Growth rentals of both single-family homes and multifamily apartments.
9 Multifamily Growth
12 Issues to Face
Declining Mortgage Affordability and Falling Household Formation
Lack of mortgage affordability is the primary driver of growth in both single-family and multifamily
Steve Jellinek rentals. High debt burdens (student loans and credit card debt) and wage levels that lag the cost of
Vice President
living make it difficult for many potential homebuyers to afford a house, making single-family and
North American CMBS
+1 312 244-7908 multifamily rentals an attractive alternative. Further, although the U.S. homeownership rate in Q4 2020
steven.jellinek@dbrsmorningstar.com was 65.8%, more than 30 basis points higher than the first quarter and the highest it has been since Q2
Adler Salomon 2012, it still sits nearly 400 basis points below the all-time high set in 2004, per the U.S. Census Bureau.
Senior Vice President
U.S. RMBS Home prices increased markedly since the subprime mortgage crisis, with the U.S. Median Home Price-
+1 203 883-5857 to-Median Income Ratio rising to 4.29x in 2019 from 3.27x in 2011 (Exhibit 1). The S&P CoreLogic Case-
adler.salomon@dbrsmorningstar.com
Shiller index of property values climbed 12% in February 2021 compared with February 2020, the biggest
Stephen Buteau jump in 15 years.
Managing Director
Global Esoteric Finance
+1 646 560-4557
stephen.buteau@dbrsmorningstar.comPage 2 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Exhibit 1 U.S. Median Home Price-to Median Income Ratio: 1990-2019
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: JCHS tabulations of National Association of Realtors, Metropolitan Median Area Prices, and Moody's Analytics Forecasts.
In addition to affordability, slowing household formation is a drag on homeownership. Between 2000
and 2010, the number of households increased by roughly 10%, according to the U.S. Census Bureau.
But household growth rates declined during the Great Recession of 2007 to 2009 and the slow economic
recovery that followed. Between 2010 and 2017, the number of households increased by only
approximately 6%. The Census Bureau data suggests that the pandemic hammered household formation
in 2020, following a brief spike in 2018 and a tick down in 2019. Household formation in the U.S.
dropped to 128 million in 2020, after averaging a 1.1 million increase per year in the previous decade.
Exhibit 2 Household Formation
Total Households % Change
135,000 0.020
130,000
0.015
125,000
120,000
0.010
(Thousands)
115,000
0.005
110,000
105,000
0.000
100,000
95,000 -0.005
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: U.S. Census Bureau.Page 3 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
The number of single-family rentals in the U.S. increased by 27% from 2004 to 2019 (the latest available),
according to Harvard Joint Center for Housing Studies (JCHS) tabulations of U.S. Census Bureau,
American Community Survey One-Year Estimates. Multifamily inventory climbed 22.9% from 2004 to
2019. Further, the Census Bureau reported there were 402,000 multifamily housing units started in the
United States in 2019, which was a 20-year peak for the nation and an increase of almost 30,000 over
the previous year. The continued expansion of both single-family and multifamily rentals comes as the
homeownership rate stands well below its peak, hampered by the rising cost of homes, particularly for
first-time homebuyers. The precipitous drop in rental growth rate in 2020 reflects the effects of the
coronavirus pandemic and mortgage rates falling to historical lows. But signs of a recovery in rental
growth are on the horizon. Expected job growth as the pandemic wanes will fuel household formations
and propensity for rent given the lack of affordability for first-time homebuyers.
Exhibit 3 Housing Breakdown
Total Owner Rental Owner Growth (%) Rental Growth (%)
140,000 0.08
120,000
0.06
100,000
0.04
Thousands of Units
80,000
Growth Rate
0.02
60,000
0.00
40,000
-0.02
20,000
0 -0.04
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: U.S. Census Bureau.Page 4 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Rental Demographics: Rising Inventory and Grayer Occupants
As shown in Exhibit 4, the U.S. housing inventory has risen 21.1% to approximately 140.8 million units in
2020 from about 116.3 million units in 2000. In 2020, renters resided in 33.4% of the occupied housing
inventory, down from a 20-year high of 36.6% in 2016.
Exhibit 4 Housing Inventory Exhibit 5 Rental Inventory
Housing Units Vacant Occupied Rented Total Rental Vacant Rental Occupied Rental % Vacant
160,000,000 37.0% 50,000,000 12.0%
36.0% 45,000,000
140,000,000
10.0%
40,000,000
35.0%
120,000,000
35,000,000
34.0% 8.0%
100,000,000
30,000,000
33.0%
80,000,000 25,000,000 6.0%
32.0%
20,000,000
60,000,000
31.0% 4.0%
15,000,000
40,000,000
30.0%
10,000,000
2.0%
20,000,000 29.0% 5,000,000
0 28.0% - 0.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: U.S. Census Bureau.
However, the total single-family and multifamily rental inventory has risen faster than the overall U.S.
housing inventory, up 23.5% to approximately 44.9 million units in 2020 from about 36.3 million units in
2000. Another sign of the strong demand for rental units, nationwide vacancy for all rental units has
dropped to a 20-year low of 6.4% in 2020, down from a high of 10.8% in 2009.
The demographics of today’s rental tenants look surprisingly different than rental tenants in 2000. As
shown in Exhibit 6 below, the older cohorts (55 to 64 years and 65 years and older) make up a much
larger proportion of the total rental tenants in 2020 than they did in 2000. The 55 to 64 years old cohort
increased to 13.3% of all rental tenants today from 8.0% in 2000, and the 65 years and older cohort
increased to 16.1% today from 12.4% in 2000. Exhibit 6 below also shows the younger cohorts (less than
35 years and 35 to 44 years) make up a smaller proportion of the total renter tenants in 2020 than they
did in 2000. The less than 35 years old cohort dropped to 36.9% of all rental tenants today from 42.8% in
2000, and the 35 to 44 years old cohort dropped 19.1% today from 22.7% in 2000.Page 5 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Exhibit 6 % of Renters by Age Cohort
Less than 35 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and older
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: U.S. Census Bureau.
The larger proportion of older cohorts making up today’s pool of rental tenants is even more interesting
when looking at the population growth of the cohorts from 2000 through 2020, as shown in Exhibit 7
below. While the total number of rental tenants increased 26.0% during that time, the 55 to 64 years old
cohort rose the fastest (109.1%) followed by the 65 years and older cohort (63.8%). The slowest growing
age cohorts were 35 to 44 years old (6.2%) and less than 35 years old (8.6%).
Exhibit 7 Number of Rental Tenants by Age Cohort
Cohort 2000 2020 % Change
Less than 35 years 14,291,000 15,525,000 8.6
35 to 44 years 7,561,000 8,027,000 6.2
45 to 54 years 4,709,000 6,135,000 30.3
55 to 64 years 2,669,000 5,580,000 109.1
65 years and older 4,132,000 6,768,000 63.8
Total 33,362,000 42,035,000 26.0
Source: U.S. Census Bureau.
While urban rental apartments may indeed serve some families, family renters have diverse housing
preferences, ranging from multifamily buildings to single-family homes. According to data from John
Burns Real Estate Consulting, 52% of single-family rental tenants are families, compared with only 30%
of multifamily renters, who are far more likely to be under 35 or over 65.
Families, who represent one-third of the entire renter pool in the United States, are likely to play an even
more substantial role in the national housing market in the future. Families total more than 13.5 million
households, and this cohort is more than 3 times larger than the number of single millennial renters in
the country.Page 6 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
The millennial generation is reaching a demographic tipping point. Over the next decade, the U.S.
Census Bureau expects the number of people between the ages of 30 and 50—the prime age range in
which people have children—to grow significantly more than it did during the last decade. The number
of these households increased by roughly 1 million between 2010 and 2020 and is likely to increase by
approximately 8 million between 2020 and 2030.
Single-Family Rental Growth
Single-family rental is experiencing unprecedented demand, and we do not expect it to abate anytime
soon. According to Freddie Mac, at least 18 million renter households live in multifamily buildings and
about 23 million renter households live in single-family rental homes, which make up 53% of the more
than 43 million renter households in the U.S. Single-family rental homes comprise detached homes,
townhomes, and two- to four-unit properties, and they can be found in nearly any market in the country.
Since the Great Recession, the single-family rental sector has been the fastest growing segment of the
rental market in the U.S. This trend has been fueled by a confluence of factors, namely the lack of ample
supply to accommodate new household formations as the housing market struggles to keep up with
demand, and the recent impact of the coronavirus pandemic, which catalyzed a migration to less dense
cities and suburbs from urban centers. The single-family rental sector was historically dominated by
mom and pop landlords, who made up 99% of the single-family rental market; however, large
institutions have quickly scaled up their participation on a regional or national platform. These
institutional participants include Invitation Homes, Tricon Residential, American Homes 4 Rent, Progress
Residential, Amherst, and Home Partners of America, which typically securitize the rent cash flows from
the single-family rental properties.
Before the Great Recession, homeownership reached a peak of 69.2% in Q4 2004 and hovered around
there until 2006 when it began its descent to a low of around 63.5% in 2016, per the Census Bureau. In
Q4 2020, with mortgage rates at historic lows, homeownership increased to 65.8%. According to a 2019
report by the Terner Center for Housing Innovation, “more than 80 percent of major metro areas have
seen a decline in the share of for-sale inventory priced in the bottom tier… Inflation-adjusted home
prices have risen significantly since 2013 and now stand more than 25 percent above 2000 levels, prior
to the housing boom… In more than two-thirds of major metro areas, bottom-tier home prices are
higher today than in 2000." The rental sector benefited from the post-crisis dip in homeownership and
from the lack of affordability of bottom-tier homes. As a result, rental inventory increased by 9 million
units between 2006 and 2019, a 26% increase, per the Census Bureau, while the vacancy rate declined
to 6.8% from 9.8% in the same period. As the supply of new homes for sale continues to fall, the tight
inventory will likely push home prices even higher and first-time homebuyers will continue to find it
difficult to find affordable homes on the market. This trend will continue to push potential first-time
homebuyers to the rental market, particularly the single-family rental segment.
Driven by significant surging of institutional capital interest in the single-family rental space, 2020
securitizations hit an all-time high in both number of deals and issuance volume of about $19 billion forPage 7 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
single-borrower and multiborrower transactions combined since the inception of the single-family rental
sector. The $2.80 billion First Key 2020-SFR1 was the largest transaction to date.
Exhibit 8 Single-Family Rental Issuance by Year
Multiborrower ($) Single Borrower ($) Single-Family Rental ($)
11,000 20
19
10,000 18
9,000 14
16
8,000
Issuance Amount ($ Million)
11 14
7,000 12 12 14 9
10 12
6,000
11 10 10
5,000 8
8 11 7 8
4,000 6
8 6
3,000
2,000 4
5
4 3 3 2
1,000 1 1 2 2 1
0 0 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Issuance Year
Source: Intex.
Historically, the single-family rental market has been dominated by individual and small-scale investors.
In a sign that more institutional investors are embracing single-family rentals, there have been several
acquisitions and investments in the sector during 2020-21. In March 2021, Jones Lang LaSalle Inc. (JLL)
bought a minority stake in Roofstock, an online marketplace in the single-family rental sector. In
January, Pretium, an alternative asset management firm focused on residential real estate, and Ares
Management Corp. bought Front Yard Residential Corp. for $2.5 billion. In October 2020, Rockpoint
Group formed a $375 million joint venture with Invitation Homes that will acquire single-family homes to
operate as rentals. Finally, Tricon Residential announced in August that a group of investors led by
Blackstone Real Estate Income Trust (BREIT) made a $300 million preferred equity investment in the
Toronto-based company, with BREIT acquiring $240 million of the preferred equity.
Over the past two years, bondholder appetite for single-family rental and multifamily securitizations has
been insatiable, and spreads tightened. For the most part, the Sun Belt states have seen the fastest
growth in units completed since 2004 (Exhibit 9).Page 8 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Exhibit 9 Top 12 States for Single-Family Rental Growth (2004-19)
Nevada 56.49%
Arizona 52.90%
Texas 34.87%
Georgia 32.54%
Idaho 32.42%
Florida 29.81%
Tennessee 25.40%
Delaware 24.67%
North Carolina 24.00%
New Mexico 21.48%
Kansas 20.02%
Colorado 19.63%
0% 10% 20% 30% 40% 50% 60%
Source: JCHS tabulations of U.S. Census Bureau, American Community Survey One-Year Estimates.
Single-family rental may be the new first home because of lack of affordability that is attributable to low
supply of single-family homes, particularly in the lower-tier price points. According to JCHS, the largest
surge in the rental sector primarily comes from those with a household income of $75,000 and over and
secondly from the $45,000 to $75,000 cohort, indicating that potential homebuyers are renting because
they’re priced out, partly as a result of large institutional firms buying single-family homes, thus
exacerbating the lack of supply. For example, Transcendent Investment Management, a private equity
firm focused on the housing market, and Electra America, a private equity firm specializing in the
multifamily sector, announced that both companies have together established a fund to acquire 15,000
newly built single-family units in suburban neighborhoods in Florida, Georgia, Texas, North Carolina,
South Carolina, and Tennessee over the next five years. Also, homebuilder Lennar Corp. announced that
it's deploying a $4 billion platform named Upward America Venture that will buy single-family homes
and townhomes in high-growth markets.Page 9 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Multifamily Growth
Among the property types backing loans in commercial mortgage-backed securities (CMBS), multifamily
is the most common, with more than $400 billion in outstanding balance, representing just over half of
all CMBS outstanding. It has also been the best-performing property type over the past nine years amid
the longest expansion on record before the pandemic.
Exhibit 10 Multifamily CMBS Issuance by Year
90.0
79.6
80.0 77.4
71.1
70.0
61.5
60.0
50.0 44.3
$ billions
40.0
30.0
20.0
10.0
-
2016 2017 2018 2019 2020
One notable change since the Great Recession is that Fannie Mae and Freddie Mac now dominate the
multifamily market because of their more competitive pricing, and they’re exempt from the risk retention
rule imposed by the Dodd-Frank Act. These government-sponsored enterprises issue the majority of
multifamily loans, about 75% of all CMBS mortgages on multifamily properties. With more attractive
terms—including higher leverage, lower interest rates, and smoother execution—compared with
conduit lenders, agencies can pick the best loans.
The multifamily delinquency rate soared above the other property types during the last recession,
topping out at 10.2% (of which the $3 billion Peter Cooper Village/Stuyvesant Town whole loan
contributed about 1.5 percentage points). But it began to recover earlier and declined at a faster pace.
As continuing job growth, increasing demand from millennials, and the rising cost of homeownership
have all contributed to a surge in demand, performance of CMBS loans backed by apartments has
rebounded to pre-crisis levels. The delinquency rate now sits at 0.40%, well below the second-lowest
1.14% delinquency rate for industrial loans. Factors contributing to the low delinquency rate include
swifter liquidation of troubled multifamily loans, CMBS lenders originating higher-quality multifamily
properties, and surging employment.
Multifamily housing has risen in importance during the great financial crisis and continues to grow as a
result of the influx of millennials into the marketplace. When the housing market collapsed in 2008, new
home construction of all types (single family, multifamily, mobile homes, etc.) were adversely affected.Page 10 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Single-family homes took the biggest hit, down nearly 35% from the best years in the 21st century,
according to the Case-Shiller Home Price Index; multifamily was hurt as well but fared better as the
rental market skyrocketed from 2008 to 2013. We saw the same pattern of growth that multifamily
housing experienced in the 1970s and early 1980s as baby boomers started looking for a place of their
own.
Multifamily occupancy has held up particularly well since the Great Recession, hovering in the 95%
range, and several factors explain why. Supply played catch-up for much of the last decade, as almost
nothing was built in the early part of the Great Recession recovery, with financing so hard to get. The
high price of ownership for many people is another factor with the homeownership rate remaining well
below its all-time high. Further, new apartment properties are targeting a new market. A new breed of
renter emerged at the top end of the market; Class A, urban-core or prime suburban properties are likely
beyond the reach of renters in existing, older units. A substantial number of completions and weak
absorption in Q4 2020 led to year-over-year increases in vacancy in major metropolitan areas. But signs
of a recovery are on the horizon. We expect 2021 to see a 20-year high absorption rate as the pandemic
subsides and pent up demand drives the recovery.
Exhibit 11 Multifamily Inventory
Total Rentals Vacant Rentals Occupied Rentals % Vacant Absorption Rate (%)
14,000,000 9.0%
8.0%
12,000,000
7.0%
10,000,000 6.0%
5.0%
8,000,000
4.0%
6,000,000
3.0%
4,000,000 2.0%
1.0%
2,000,000
0.0%
- -1.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Reis, Inc.
The pandemic is not slowing construction. According to Reis, Inc., about 81,000 units were completed in
Q4 2020, up from 77,000 in Q4 2019. The markets with the highest completions (relative to inventory)
over the past four quarters are scattered across the U.S. Exhibit 12 displays the top 10 cities for
multifamily construction. The common theme is less expensive, secondary and tertiary markets
experiencing migration from major metropolitan areas. Interestingly, demand outpaces supply in just
three metropolitan areas: Charlotte, North Carolina; Jacksonville, Florida; and Fort Lauderdale, Florida.
We expect the exodus from major metropolitan areas to be temporary, and markets that saw high
demand before the pandemic should return to high demand in 2021-22 (San Francisco, Seattle, etc.).Page 11 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Exhibit 12 Multifamily Rental Units Growth by City: 2004-19
Units Added Past Four Quarters Completions to Inventory (%)
10,000 4.5
9,000 4.0
8,000 3.5
Units Added Past Four Quarters
Completions to Inventory (%)
7,000
3.0
6,000
2.5
5,000
2.0
4,000
1.5
3,000
2,000 1.0
1,000 0.5
- 0.0
Louisville Omaha Charlotte Austin Kansas City San Antonio Minneapolis Jacksonville Fort Orlando
Lauderdale
Source: CBRE Econometric Advisors.
Although multifamily demand in 2020 was less than it would have been absent the pandemic, only a
handful of major urban centers, such as San Jose, California; New York City; and San Francisco, had
extreme outcomes. National multifamily fundamentals weakened in 2020 driven by coronavirus-related
challenges. According to real estate services firm CBRE Econometric Advisors, 117,187 apartment units
were absorbed in the U.S. in 2020, or 1.0% of total stock. The number of units absorbed in 2020 was
nearly 60% less than the 291,724 units absorbed the prior year, although there are signs a recovery is on
the horizon. For example, Q4 2020 absorption was strong (56,000 units), and more markets than not
posted decreases in vacancy. Another positive sign is that apartment absorption accelerated to 160,400
in the second half of 2020, up 75% and above the long-term average.
Of course, the rebound from the pandemic will vary by market. The Inland Empire and Sacramento are
showing the top gains, with rents up 7.6% and 6.4%, respectively, between Q1 2020 and Q1 2021. They
also showed strong rent growth thanks to limited new supply coming to market. Meanwhile, rents in
New York, San Jose, and San Francisco remain seriously compressed year over year, though their
monthly declines have slowed from the summer and fall 2020. And in cities like Seattle, which showed a
7.7% decline in rent year over year, the struggle continued as tight coronavirus restrictions dragged on
and technology workers remained decamped elsewhere.
Construction and completions are continuing apace, even as the multifamily industry must deal with
skyrocketing material prices and the pandemic. According to a recent report from CBRE, the nation’s 24
top markets for construction saw a total of 282,500 apartment units completed from Q2 2020 through
the end of Q1 2021, an increase of 1.8% from the same period a year ago. The notable trend this year
has been how many smaller markets in the South and Southwest, including Austin, Texas; Charlotte;
and Nashville, have seen increases to their existing inventories that were significantly above the
national average.Page 12 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
Issues to Face
The rental market has had a more challenging year than usual, dealing with the coronavirus pandemic,
and renter support is a primary concern, even as rents fall. Industry trade groups estimate that renters
are behind on payments by as much as $70 billion. Some tenants will make up the payments over time,
and some property owners will be reimbursed through a $25 billion federal renter subsidy passed by
Congress, but many owners will have to deal with payment shortfalls. Multifamily and single-family
rental delinquency rates remain relatively low (though single-family rental delinquency remains above
prepandemic levels), but in some cases that is because lenders are offering forbearance, which they will
deal with after the pandemic. In addition to the federal government's eviction moratorium, some state-
and city-level jurisdictions have implemented eviction bans that increase the difficulty of collecting rents.
However, the shortage of affordable housing will continue to fuel demand for the single-family and
multifamily rental sectors as potential homebuyers find themselves priced out of the homeownership
market. Macroeconomic forces will also play a role as potential inflation fears could come to fruition,
causing mortgage rates to increase and further exacerbate homeownership affordability, which would
also favor the rental market.
Notes:
All figures are in U.S. dollars unless otherwise noted.Page 13 of 13 Multifamily and Single-Family Rentals to Continue Outpacing the Rest of the U.S. Housing Market | June 14, 2021
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