Bluerock continues to believe the residential sector, including the single-family rental and apartment subsectors, are poised to continue their strong performance mainly attributable to:

  • Shortage of housing and rental units
  • Robust household formation
  • Unaffordable home prices
  • Lack of institutionalization in the single-family rental sector

“The housing shortfall will continue to put upward pressure on single-family home prices,
keep apartment vacancy rates low, and push rents upward”

JOHN CHANG, MARCUS & MILLICHAP

The national housing shortage has worsened since the Great Financial Crisis. According to the National Multifamily Housing Council, overall demographic growth is expected to generate demand for another 3.7 million new rental properties through 2035. As shown below, the late 1970s and early 1980s saw 10 year average housing production at 0.8x population growth, by 2020 the 10-year average housing production had declined to less than 0.4x population growth.

Housing Production Has Not Kept Pace with Population Growth

Source: Federal Reserve Economic Data, August 2022

This is worsening with the record household formation driven by the millennial generation. The 72.2 million Americans in the millennial generation will be forced to rent longer than past generations due to the historically high housing prices, providing a strong tailwind for the single-family rental sector. (Marcus & Millichap, Special Report: Housing Affordability)

Millennials in Prime Household Formation Years are Driving SFR Housing Demand

Source: U.S. Census Bureau, AMH Research

The inefficient amount of housing has pushed single-family rental rate growth and occupancy to near record highs.

SFR Occupancy Rates

Through Q1 2021

U.S. Census Bureau

SFR Rent Growth
Year-Over-Year % Change in Average Rents,
Renewals vs. Vacant-to-Occupied

Through April 2022

DBRS Morningstar

Arbor, Single-Family Rental Investment Trend Reports Q2 2022

The shortage of housing and increased demand for more space, combined with increasing interest rates has driven housing prices to unaffordable levels.

Rate Surge Compounds Price Escalation

Marcus & Millichap, 3Q 2022 Multifamily National Report / * Through Second Quarter 2022

The estimated minimum annual income to afford a house in the U.S. eclipsed $120,000, a level that more than 73% of households cannot afford.

Home Ownership Potential Limited by High Prices and Mortgage Rates

Marcus & Millichap, 3Q 2022 Multifamily National Report

The difference in monthly payments between renting and homeownership have never been higher surpassing $1,000 per month…

Mortgages Substantially Outpacing Rents

Marcus & Millichap, Special Report: Housing Affordability

…driving strong demand for not only single-family rentals but also apartments. Apartment occupancy is near all-time highs, driving continued rental rate growth.

U.S. Apartments: Rent Change and Occupancy

Annual Rent Change – National
National Occupancy Rate

Axiometrics, Analytics Guide 3Q 2022

The lack of institutionalization in the single-family rental sector (approximately 2% institutional ownership) provides a significant opportunity for institutional investors to scale in this sector.

U.S. Housing Stock

Morgan Stanley Research

The national housing shortage, when combined with record household formation and unaffordable home prices has created record highs for occupancy in single-family rental and apartment units, leading to historic year-over-year rental growth. These factors and the lack of institutionalization in the single-family rental sector support a strong thesis for investment in the residential sector.