Urban flats can be small and restrictive. Traditional homeownership is expensive and out of reach for many.
So, what's a renter to do when in search of a larger space without a pricey mortgage?
For many, the answer lies in renting a single-family home.
Unlike a traditional rental home, a single-family rental (SFR) shares no walls with other units and boasts its own access points. Instead of several homes joined by hallways and lifts, a single-family home provides more privacy and an independent living experience, without the hassles that can accompany ownership.
Single-family rentals are appealing to both renters and investors for a myriad of reasons. Keep reading to discover why investors are clamouring to invest in SFR and who is moving into these types of developments.
Major Investments are Underway in the SFR Market
Because SFRs serve as a happy medium between smaller urban rentals and homeownership, they are growing in popularity in the United Kingdom. Figures from the British Property Federation indicate that the number of completed SFR buildings is growing 66% year on year.
Financial institutions have also taken notice of this trend toward SFRs. Goldman Sachs recently finalised a deal with Pitmore and Urban & Civic PLC to establish hundreds of single-family rentals in the United Kingdom. This deal marks Goldman Sachs' first foray into single-family home development.
Goldman Sachs also isn’t the only major player getting into the single-family rental game. Global investment firm Blackstone and financial services provider Legal & General have also backed UK-based projects focused on single-family rentals.
What makes single-family rentals such an attractive investment option? There are many reasons behind this shift to SFRs:
Residences are the modern office space
Before the pandemic, offices and commercial spaces were seemingly permanent fixtures in our daily lives. In recent years, attention has shifted away from these public spaces. Despite some employees returning to the office, more than a third of office workers are still working from home at least part of the time, and less than 10% say that they want to work in-office five days a week. With residences doubling as office spaces, residential real estate is becoming an increasingly attractive investment.
There is more land ripe for development outside of city centres
Densely populated urban areas have less space for new developments. The lack of space coupled with immense demand drives up rental prices in urban environments. Suburban and rural areas have more land ripe for development, allowing developers to construct single-family homes that are less expensive to build and reside in. This type of suburban development is what urban policy think tank Centre for Cities calls a solution to the UK’s housing crisis.
Single-family rentals are likely to yield successful outcomes
Data surrounding SFRs in the United States, where the sector is better established, suggests that these assets are lucrative in the long term. This is because single-family renters tend to stay in one place for longer than multi-dwelling renters. Plus, the average financial return for single-family rentals is nearly identical to that of stocks and bonds over the past 25 years, without the market volatility.
Who’s Moving Into Single-Family Homes?
As the data shows, there are a number of reasons behind the current investment boom in single-family rentals. But who is moving into all of these new developments?
Millennials, who are currently aged 26 to 41 years old, face an affordability crisis when it comes to homeownership.
In some parts of the UK, housing prices demand that the average full-time worker pay nearly eight times their annual earnings for a home. In the early 1990s, this figure was approximately 3.5 times their annual income. Given these numbers, it's little surprise that one in three UK millennials are expected to never own a home.
SFRs provide a promising alternative to homeownership for adults who are growing out of their cramped urban flats. Single-family homes offer many of the same conveniences that one would enjoy as a homeowner, without the costly mortgage.
Rental homes in metropolitan areas are typically designed with urban professionals in mind. These floor plans often run counter to what growing families are looking for in their next home.
When searching for a home that checks those boxes, single-family rental homes become a very viable option. Because SFRs do not share walls with other homes, they provide valuable privacy when raising a family.
Single-family rentals usually offer a garden, which is another desirable feature for young families with children and/or pets. Finally, because single-family rental homes are larger than a typical flat, they offer more storage space to suit a growing family's needs.
The pandemic changed many things about the way Britons live and work. As of June 2022, 38% of Britons work from home at least some of the time. This figure is only down approximately 10 points from the height of the pandemic in April 2020.
In London and other sprawling areas, multi-dwelling or Build-to-Rent (BTR) homes are beginning to vacate as former urbanites seek out rentals in less dense and more cost-efficient areas along the outer bands of city centres. There, residents enjoy better access to parks and outdoor spaces and a lower cost of living.
This "halo effect" is visible when looking at the suburbs of Birmingham, Manchester, Leeds, and Edinburgh. These four cities saw falling demand within city limits and increasing demand in their suburban areas. It is clear to see that urbanites, weary of fast-paced city living and the high costs associated with it, are choosing to relocate to areas with SFR options.
Amenitize Your SFR with Smart Technology
Traditional homeowners have enjoyed the convenience of smart home technology for years. Deliver the same exceptional experience to your residents with a smart home technology package, perfectly suited to your single-family residents.
SmartRent currently offers the following devices for single-family rentals:
Energy-efficient smart thermostats, which can drive down energy costs and help achieve net-zero goals.
Video doorbells and smart locks for exterior doors, which can be operated remotely and provide unparalleled peace of mind.
Intuitive parking management to make parking as convenient as possible for SFR residents.
SmartRent boasts a growing list of single-family rental clients and possesses the knowledge required to equip your SFR asset with in-demand smart technology.
Curious to learn more? Request a complimentary demo and allow us to introduce you to our leading proptech platform.