The Light: Lack of Supply Is Pushing Rents and Home Prices

The Light: Lack of Supply Is Pushing Rents and Home Prices

Categories: COVID-19 The Light

Since the middle of 2019—with one huge pause last spring—housing demand has been greatly outstripping supply. More housing (both for-rent and for-sale) will help alleviate the current environment of rapidly rising rents and home prices. We are well on our way to more supply coming in 2022 and 2023. Here are the upcoming supply pipelines we are monitoring:

  • Rental Homes: Many resale homes that are coming on the market are finding their way into single-family rental (SFR) portfolios. With more rental home supply, occupancy rates will normalize and rent growth will slow.
    • Build-for-Rent (BFR): BFR operators, owners, and builders are adding some much-needed rental home supply. We expect this channel to grow as capital continues to enter this asset class. We publish a quarterly Residential Land Survey and learned roughly 7% to 10% of land purchases in the last few quarters in the Southeast, Southwest, and Texas are going to BFR operators. This indicates future supply coming down the pipeline.
    • Rising property taxes: Recent home price appreciation will cause significant property tax increases in most states. These increases will be passed onto tenants until vacancy rises.
  • Apartments: The 30-year high supply of apartment construction is being quickly absorbed, leading to more construction in the works. Capital is flooding into apartment development, which will increase supply once again.
  • For-sale (new and existing): Home builders are on land buying sprees, and we are finally seeing more resale listings hit the market. More for-sale supply will slow down the tremendous price appreciation that has been occurring.

For now, let’s take a look back at what the single-family rental REITs have reported. In early June, Invitation Homes (INVH) reported 14.1% same-home new lease rent growth for May 2021 and American Homes 4 Rent (AMH) recently highlighted 12.7% same-home new lease rent growth quarter-to-date in May 2021, both striking results that indicate insatiable demand.

Here are a few key takeaways from our 1Q21 Single-Family Rental REITs Results Report, a new report we added to our single-family rental research suite, which covers American Homes 4 Rent (AMH), Invitation Homes (INVH), and Tricon Residential (TCN).

In 1Q21, the three SFR REITs reported the following results*:

  • 9.3% same-home rent growth on new leases, the highest rent growth we’ve seen since we’ve started tracking this metric.
    • We analyze market level same-home rent growth and for the 3 combined REITs, we saw 17% same-home new lease rent growth in Phoenix, and 13% same-home new lease rent growth in Las Vegas and Atlanta. Landlords are raising rents much less on existing tenant renewals.
  • 4.6% same-home rent growth on renewals, which is back to pre-COVID levels. Landlords exercised restraint in pushing renewals during the pandemic. We expect this number to accelerate through 2021 as the economy opens up and occupancy remains so high. Below are the results for May:
    • AMH same-home renewal rent growth = 5.3% (quarter-to-date in May 2021)
    • INVH same-home renewal rent growth = 5.9% (May 2021)

The SFR REITs are in growth mode. This added supply will eventually slow rent growth and normalize occupancy rates.

  • We are now tracking where the SFR REITs are growing their footprint the most.
    • Breaking it out by market, the SFR REITs grew the most in Columbia (+20%), Salt Lake City and Dallas (+10%), Raleigh (+8%), Jacksonville (+6%), and Seattle, Phoenix, and Charleston (+5% each).
  • We also summarize each company’s earnings call and learned the SFR REITs are growing their portfolio through acquisitions, Build-for-Rent communities, and also purchasing scattered homes from builders.

All of the above presents opportunities for savvy investors all over the country. The single-family rental (SFR) and Build-for-Rent (BFR) sectors continue evolving and so will our research. For more information, please reach out to Danielle Nguyen or fill out this form

*Weighted average same-home metrics.


Danielle Nguyen If you have any questions, please contact Danielle at (949) 735-2521 or by email.