Real estate consultant John Burns was recently interviewed by Gary Beasley, founder of Roofstock, a Bay Area-based financial technology startup. In the interview, Burns shares his thoughts on real estate trends and how different markets and property types are responding to the COVID-19 pandemic.
You can watch the full interview below. This discussion on single-family rentals starts at the 11 minute mark.
Burns is, above all, a housing expert. He provides consulting services for many of the largest institutions in the housing industry, and many look to Burns for strategic guidance. If we look at both today’s unique situation and past trends, Burns thinks most positively of the single-family rental market.
While the multifamily sector has outperformed many industries, single-family rental investors have fared the best in the current crisis. Burns says that the “saving grace” of the single-family rental industry is that it has not been overbuilt. Most real estate developers have been focusing on building apartments, and new demand for single-family rentals has continued to outpace new supply.
Many renters who thought they enjoyed apartment living are starting to have a change of heart after spending several months quarantined with their families in tight living quarters. Institutional apartment buildings balance small living spaces with shared amenities. The units don’t have space to exercise, but that’s OK because there is a fancy gym with brand new equipment for all to use. The units don’t have space for your dog to play, but that’s OK because there is a beautiful dog park on the roof. There is no place in the apartment for your children to do their homework, but that is also OK because there is a library on the 5th floor with private study rooms. But what happens when there is a pandemic? All of the amenities get shut down, and now, you are stuck in the apartment with your spouse, your kids, and your dog. No gym, no library, and no place to breathe. All you do at that point is open up the computer and start figuring out how you are going to move into a house with a yard ASAP.
Additionally, buying a house is not an option for many Americans at the moment. Burns has been predicting a fall in the United States homeownership rate for the past several years. Since the majority of homeowners were born before the 1960s, he believes the homeownership rate will continue its decline as they move into retirement homes and/or pass away. Millennials will purchase houses, but they will be more than offset by the aging Baby Boomers. Other contributors to a further decline in the homeownership rate will come from the rise in single parenthood (can’t save for a down payment, because they are spending all their money on childcare) and the historically high student debt burden. In the interview, Burns does note that there could be an increase in home purchases due to the low mortgage rates and terms during the pandemic, but ultimately, he expects the single-family home rental market to continue performing well, as it has been. Burns co-wrote a book called Big Shifts Ahead that goes into this trend in greater detail.
Not only are more people choosing single-family home rentals for the interim, but they are staying in them. When people move into a house, they tend to have more space and start to accumulate more belongings. This results in lower turnover rates on average. It also means that, once underway, the transition described above is unlikely to reverse course. The single-family rental market is one of the safest places to be in today’s environment.
Jim Dickson is part of the Hughes Private Capital investor relations team.