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USA Residential REITs: Sector Focus
Monday, 29 September 2014 03:36

Residential: the Joint Center For Housing Studies of Harvard in its report for 2011 noted that 8.7% of low-cost rental space was upgraded to higher rents on a net basis during the last decade & the shortfall of affordable units doubled to 5.1m from 2001. The housing crash has sent millions more Americans into apartments, which has depressed vacancy rates such that just 4.3% of apartments were vacant nationwide in the 1st Quarter, well below the 8% available after the housing crisis.


There are approx 41m rental units (2013) accounting for about 30% of the housing market, split between approx 25m apartments / 60% of the total, and nearly 14m are single-family rental home / 35%, and around 2m mobile homes / 5%.


Since the housing crisis began in 2008, approx 4.6m homes were lost to foreclosure (according to CoreLogic), and the vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of home-ownership and into rentals, both apartments and single-family rental homes. There are now 43m renter households, or 35% of all US households, the highest rate in over a decade for all age groups (according to Harvard's Joint Center for Housing Studies), and 4m more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s. As a result, rental vacancies have fallen dramatically, and rents have skyrocketed. "We are in the midst of the worst rental affordability crisis that this country has known," said the US Secretary of Housing and Urban Development, with half of all US renters paying more than 30% of their incomes on rent, up from 18% a decade ago (according to the Harvard center). For those in the lowest income brackets, the jump is even worse, although “19 out of 20 people still say that they intend to buy a home at some point in the future, if they're under the age of 30" (Harvard's Joint Center for Housing Studies). Ironically, while more than 3m owner-occupied homes are now investor-owned rentals, there is still a lack of supply in the market (late-2013).


  • Single-Family Homes: Houses have recently emerged as a new investment class due to their cheap prices (via foreclosures), and growing demand for rentals (homeownership fell to 65% in 2012/3, an 18yr low), pushing the number of homes to rent upto 14m (approx 35% of all stock – up about 5% on 2005), at an average cost of about USD200k ie worth around $2.8tr. REITs that have recently emerged to take advantage of these conditions include Silver Bay Realty, Waypoint Homes, American Residential Properties, Colony American Homes & American Homes 4 Rent (Blackstone are also a big investor in the sector).

    Some estimates of Single-Family Rental / SFR REITs indicate that they purchased nearly 400,000 homes in the 5 years to 2014 (partly because the banks and the housing market could not cope with the flood of foreclosures), and some investors thought it a great buying opportunity. The total universe of residential rental properties is approx 14m units, but is dominated by small investors and individuals (with large institutions only holding around 200,000), many of whom either inherited the properties or ended-up with them via "move-ups."

  • Manufactured Homes: Mobile Homes: While mobile home parks had proliferated in America in the 1970s, with half of new housing starts in 1972 being manufactured home sites, the industry had overbuilt and the parks did not begin to fill until the mid-1980s. By the early 1990s, manufactured homes rebounded as a new form of affordable housing. Manufactured homes differed from mobile homes in that they tended to move only once, from the factory to the home site. Better construction of the prefabricated homes and more pleasant surroundings, with amenities, graceful landscaping, and the look of permanent homes, transformed manufactured home communities into a desirable housing alternative. In the 1990’s manufactured home communities became an attractive investment on Wall Street due to their stability. The cost of relocating a mobile / manufactured home resulted in low resident turnover while the low cost of operations and the low rate of loan defaults made the industry a fairly low-risk investment. Wall Street's support for manufactured home communities spawned consolidation within the industry as well as new manufactured housing developments.

  • Comparing with manufactured homes with the multi-family average, one can see that the average cost per manufactured home is around $64k or over 5 times cheaper than a single family home at USD$325k, yet manufactured homes provide about 35% more space at approx 40% less cost / sqft.

Retirement Communities & Health Services

The 55+ population is expected to grow 26% between 2015-2030, whilst the 75-84 & 85+ sectors will grow even faster, as 10k Baby Boomers reach 65 every day for the next 15 years, so the demand for senior care services WILL increase, especially amongst the 15% of the 75-84 / 40% of the 85+ population who already need help with at least 3 daily living activities. Unfortunately, on average they only have $120k in their retirement accounts, so many will have downsize to live in cheaper accommodation.


Last Updated on Wednesday, 28 October 2015 06:34