Real estate
Real estate

U.S. single-family rentals

April 4, 2024
Arthur Jones
Senior Director, Global Research and Strategy
JD Stehwien
Senior Analyst, Global Research

In the third part of our Living Sector Series, we focus our attention on single-family rentals, which is one of our highest conviction strategies within the real estate asset class today. Once synonymous with home ownership, the single-family market underwent an evolution following the Global Financial Crisis (GFC) due to shifts in economic and demographic dynamics, which changed the way individuals and households think about housing.

In the decade following the GFC, it also became apparent that younger generations of would-be homebuyers did not have the financial wherewithal to purchase homes as prior generations. As institutional investors have increasingly taken note and expanded their focus on the residential sector, single-family rental homes have become more prominent within the U.S. housing landscape and offer several interesting tactical and strategic opportunities for investors.

In this paper, we will focus on the dynamics of the U.S. housing market as it relates to the single-family rental sector, with an emphasis on the shift in housing affordability, which we believe is a key to sustained and broad-based demand.

Emergence of single-family rentals

The Global Financial Crisis (GFC) was the most transformative economic event in the post-World War II era. The financial meltdown and implosion of balance sheets in the U.S., and across the globe, pushed the economy into a deep recession that reverberated throughout the housing sector. A primary catalyst for the recession, the housing sector suffered swift and severe consequences. Home values fell by 25.4% between 2006 and 2011, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. During the recession, the economy lost nearly 9 million jobs, with the labor market failing to return to full employment until 2017. Moreover, tight credit conditions hampered both the housing recovery and the ability of developers to build enough housing to keep pace with the nation’s population growth. Insufficient growth of the nation’s housing stock since the GFC has contributed to bringing vacancy to a generational low today (see Exhibit 1).

EXHIBIT 1: Single-family homeowner vacancy near a 45-year low
Single-family homeowner vacancy rate, %

The insufficient growth of the nation’s housing stock has contributed to bringing vacancy to a generational low.

Source: Moody’s Analytics, Census Bureau, Principal Real Estate, Q4 2023

During the period following the GFC, it is estimated that roughly 10.5 million four-year degrees were conferred.1 New graduates entered a labor market with conditions far more formidable than those of prior generations, which hindered their ability to accumulate wealth during a critical period in their careers. As a result, many Millennials have found it challenging—even today—to accumulate enough savings to purchase a home.

1 USAFacts: https://usafacts.org/faq, National Center for Education Statistics, Table 318.20

The single-family rental sector is supported by favorable demographics and market fundamentals. Download the full paper for our inclusive perspective.

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Risk considerations
Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.

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MM13931 | 03/2024 | 3465955-032025
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