The growing force in global listed real estate
So, we have a number of trends converging.
The rise of working from home fuelled by technology; a shift away from cities towards suburbs and lower density towns; a rising propensity to rent not buy; and a flood of single-family homes hitting the market as Baby Boomers retire.
Together, they are creating an entirely new institutional asset class: the single-family rental.
To be sure, it has been an arduous road. A little over a decade ago, in the Global Financial Crisis, as many as 10 million Americans lost their homes7. That crisis forever changed the way the nation viewed housing.
But as the bubble of unsustainable mortgage debt in the economy unwound it also allowed the creation of the first large pools of institutionally owned housing, many of which were bought out of foreclosure.
Institutional investors own around 200,000 US single-family rentals, a small fraction of the 15 million single-family homes that are owned by traditional ‘mum and dad’ landlords. This is what we call a fragmented market and one ripe for consolidation8.
By way of comparison, institutions own 55 per cent of multi-family (apartments) rentals9.
But the single-family rental is growing fast.
Baby Boomers will sell some 12 million homes over the next decade10 as they transition to retirement.
With the traditional buyers of those homes now likely to rent, many homes will not find new families to own them.
Instead, institutional real estate investors can buy a large proportion, potentially up to 1.8 million single-family homes by 2030, growing their share of the rental market some 10 times in less than a decade.
Ultimately, as responsible investors, our duty is to assess and respond to the long-term trends driving the world economy, shifting demographics is one of the most important.
The genesis of these trends can sometimes be unpleasant but are real. We have seen this in the current combination of low interest rates, home ownership affordability challenges, the pandemic and even back to the Global Financial Crisis.
But confluence of these factors is creating a genuine, long-term change in the way US residential investment will operate especially for the Millennial generation that are looking for more flexibility than prior generations.
And, we believe, this new normal will fuel the housing rental market for decades to come.
3 UN Population Division
5 American Homes 4 Rent Investor Highlights, September 2020: https://s22.q4cdn.com/136596447/files/doc_presentations/2020/09/AMH-Investor-Highlights-September-2020.pdf
8, 9, 10 Morgan Stanley Research REIT Report, March 2019
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