Single-family: lost in translation

First in a series of single-family rental (SFR) 101’s from Richard Berridge, CEO of the UK Single-Family Association.

Single-family homes in Sittingbourne, Kent. Richard Berridge, CEO of UK Single-Family Association discusses the differences between UK and US SFR | BTR News
Single-family homes in Sittingbourne, Kent. Image credit: Hearthstone Investments.

CEO of the UK Single-Family Association, Richard Berridge has witnessed the comparisons and miscommunication between the UK and US single-family housing (SFH) and private-rented sectors (PRS). At different stages in their growth, Richard dives into what either country can learn from each other, and how the single-family sectors might be able to stop getting lost in translation.

By Richard Berridge, CEO, UK Single-Family Association

‘Single-family’ is not a phrase that we in the UK have commonly used to describe houses. In terms of UK rental, the PRS is the PRS and no distinction between flats and houses is made. We have data which looks at both housing typology and tenure in the UK, but that’s about it.

In the US, the term single-family (SF) is common and has been historically used to usually describe detached houses irrespective of tenure. Immediately, we have a deviation between what investors in the UK understand to be SF: terraced, semi-detached and detached houses, and what those in the US believe it to be SF: detached.

A Forbes Advisor uses the following definition:

A single-family home is intended for one family to live in at a time. In most cases, this phrase is used to refer specifically to single-family detached homes.”

Forbes Advisor

This US distinction is carried over into the single-family rental (SFR) sector. Numbers of SFR homes in the US vary quite widely, but the Harvard Joint Centre for Housing Studies (JCHS) puts the number at about 16 million. Market distribution of SFR in the US might surprise you:

John Burns Housing Analysis and Research
John Burns Housing Analysis and Research

John Burns Housing Analysis and Research estimate that only 2% of the market is formed of investors holding over 100 homes. This means that roughly 320,000 SFR homes are owned by large scale or institutional investors. This figure accords with Investors.com who use data from the US National Rental Home Council.

The rest of the market is owned by smaller, mostly ‘mom and pop’ investors. Not so very different to the market in the UK. The US SFR market is estimated to be valued at $4.4tn.

So, in real terms, the SFR institutional investor market size is relatively small compared to the overall size of the SFR market. It’s also quite immature – and not something we usually associate with the US rental market.

Evolution

Institutional landlords have been major players in the US multifamily space for decades, but it wasn’t until the aftermath of the Global Financial Crisis (GFC) that institutions saw the opportunity in SFR. The crash of the SF market during the GFC led to a wave of foreclosures and credit crippled households, forcing a curb in demand. These foreclosures resulted in many SF homes in the hands of banks and trusts.

Advantaged well-capitalised institutional investors were able to bulk-buy distressed portfolios of individual family homes at a substantial discount. It was this ability to immediately scale up, benefitting from economies of scale which laid both the foundations of large-scale institutional investment in SFR and the model. According to Moody’s, the number of properties held by SFR REITS increased 8.4% from 2017 to 2022 and they remain net acquirers of SFR’s.

It’s the exploitation of this model which has led to institutional investors being accused of using their considerable financial muscle to elbow aside potential homeowners. This is something UK investors must be especially wary of if they are not to fall foul of public and political opinion.

Whilst the old US SFR institutional model persists, although the inefficiencies of acquiring single houses are becoming apparent, so does the increase in popularity of purpose-built SFR schemes which is gaining more of a foothold.

With over 5,000 houses across 38 locations, Atlanta-based Quinn Residences is a ‘Build to Rent’ developer of houses. And there are others: Avilla have benefitted from a $400m capital injection to deliver a pipeline of 60 projects, Invesco have invested in Avanta Residential’s 20 scheme pipeline, Capstone have secured investment from a PE partner, and JP Morgan has formed a $625m JV with AMH (America Homes 4 Rent).  

So, what began as an arbitrage opportunity after 2008-09, leading to a permanent investment strategy, is now evolving into delivering purpose-built homes. Most expert US commentators see purpose-built SFR as the progressive direction for the sector.

This is where the UK comes in. The UK institutional model, which from the outset was all about scalability and acquiring schemes, or part of schemes, is ahead of the US, in maturity of model, if not actual numbers. 

Therefore, comparisons between the UK and US SFR markets are somewhat misleading, but that hasn’t stopped some principal agents/consultants in reporting US SFR data as analogous to that of UK SFR.  

Accurate translation is crucially important when comparing UK real estate with the US, particularly when it comes to residential. What sounds familiar or equivalent may, in fact, have a completely opposite meaning. Whilst the result of the misunderstanding might not be as perilous as sauntering down the pavement in New York, as we’ve seen, it can lead to unnecessary confusion and false narratives – neither of which is helpful in delivering class leading houses to the rental sector.