Freddie Mac: Small-time owners of single-family rentals need more financing options

by Scott Klocksin

A new white paper by Freddie Mac outlines the significance of single-family rentals to the U.S. rental housing market, highlighting a dearth of financing options for the bulk of investors who own such housing.

According to the paper, SFRs, which are defined as rental housing units on properties with four or fewer units, comprise the single-largest source of rental housing in the country. These units house an estimated 25 million people nationally and play an outsized role in rural areas, where they make up about two-thirds of all rental housing. About half of the overall rental stock nationally is comprised of SFR housing.

The paper notes that since SFR housing is disproportionately owned by small investors, there’s no uniform terms or credit standards for loans on SFR housing—something Freddie Mac argues should change.

According to the paper, 88 percent of SFR stock nationally is owned by “very small investors”—those that own between one and ten units for the purpose of renting them out. This chunk of the market accounts for an estimated 19.3 million units of housing across the country. So-called “middle-of-the-pack” investors that own between 10 and 2,000 units are increasingly getting in on the single-family rental market. But large-scale institutional investors, so far, appear to be late to the “house party.” Such entities only own about 1 percent of the total SFR market.

It’s worth pointing out that Fannie Mae has had some skin in the single-family rental game since at least last year, when it began a partnership with Invitation Homes, a brand operated by Blackstone, the world’s largest private equity firm. Last year, Fannie Mae announced it would back $1 billion in debt collateralized by rental homes bought by Blackstone in the aftermath of the financial crisis. Disclosure of the partnership came just after Invitation filed an IPO, about two years ago. In total, Blackstone bought about $10 billion worth of single-family rental homes throughout the U.S. in the aftermath of the financial crisis. It owns roughly 50,000 such dwellings throughout the country.