Single-Family Rental Homes Largest Source of Rental Housing

Single-family rental homes are now the largest source of rental housing in America and play an especially important role in rural areas, where they account for two-thirds of the rental housing stock, reported Freddie Mac, McLean, Va.

“The single-family rental market is an important segment of the housing market and the data reveal it to be an affordable housing option for many American families,” said Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos.

The SFR market makes up nearly half of the overall rental market and is the single largest segment of the rental market by valuation and households served, Freddie Mac’s white paper, Single-Family Rental: An Evolving Market said.

The report called secondary market opportunities for SFR loans “limited,” in part because much of the SFR market is driven by small investors–the overwhelming majority of SFR properties are owned and operated by individuals or very small investors. “Apart from the select few institutional investors with access to the capital markets, there are limited secondary market opportunities for SFR loans with middle-tier investors that would provide liquidity and stability and there is not a uniform set of terms and credit standards for loans on SFRs,” the report said.

There is a slow-growing middle-tier investor market with further potential for growth, Freddie Mac reported. Large-scale institutional investors are a new entry into the market, but are limited to a select few firms that own barely one percent of SFR properties nationally.

Freddie Mac launched an SFR pilot program in 2017 to demonstrate the efficacy of secondary market infrastructure. The pilot included both middle-tier investors and affordable homes in select large-investor portfolios and demonstrated how a secondary market infrastructure focused on SFRs affordable at 80 percent of the area median income could be created and operated, particularly for middle-tier investors.

The Federal Housing Finance Agency announced last spring it would discontinue both Freddie Mac’s and Fannie Mae’s SFR pilot programs. “What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises,” FHFA Director Mel Watt said in April when he announced Fannie Mae and Freddie Mac would cease most of their single-family rental pilot programs.