Reality Checks for Single Family Rentals

Ten days recovering from surgery puts a different perspective on things that you care about and might take for granted ─ like your health and the prospects for single family rentals. Over the past five years, the REO-to-rental, single family investment, buy-and-hold, whatever-you-want-to-call-it business came out of nowhere and blew the real estate industry away. Many people have worked very hard, taken serious risks and made sacrifices to create attractive, safe, affordable housing.

However, things are changing and here are five challenges the business must meet to overcome the challenges of change.

1. The current pace of demand for new housing will decline by 2025.

For several decades we’ve grown accustomed to an ever-expanding demand for housing that’s capable of soaking up enough rental and ownership properties to drive prices consistently upward at a rate of 3 to 5 percent a year—with time out for the housing crash which we are quickly making up for. Those days are ending.

In the aftermath of the Great Recession, the U.S. labor force shrank for three consecutive years – the only multiyear decline in postwar history. Although short-term cyclical factors drove some of the recent workforce contraction, longer-term forces – including the continued retirement of Baby Boomers – will soon usher a prolonged period of slower labor force expansion.

The most recent projections from the U.S. Bureau of Labor Statistics (BLS), which are based on the Census Bureau’s 2008 population projections, call for annual labor force growth averaging just 0.6 percent between 2012 and 2025. This compares with average growth of 1.5 percent per year between 1948 and 2012. Without jobs, immigration will dry up (Source Fannie Mae Housing Insights, Volume 3, Issue 7). Bottom line is that the …read more