Opinion: Investors play a key role in providing affordable housing

We live in a world of post-pandemic inflation and uncertainty. Interest rates, single-family homes, gas and groceries, among other essential commodities, are rising. The dream of owning a home is out of reach for many, yet consumer preference for home ownership remains strong and has likely increased. Investors provide capital that many families need in order to fulfill their desires to live in a home, whether for rent or for ownership.

First, let’s look at some of the factors driving increases in home rents. Millennials have come of age and are now the largest consumers of US housing stock; Still, they bring some unique features to the market. Data from John Burns Real Estate Advisory shows that student loan debt has increased by 100% since 2007, keeping many tenants in place. Another factor illustrated by John Burns is that 30-year-olds delay life milestones. In 2020, only 32% of 30-year-olds owned their own home, compared to 58% in 1980. Likewise, only 48% of all 30-year-olds were married in 2020, compared to 83% in 1980.

Flexibility or mobility is another aspect for renting

When selling a home, there are typically nearly 10% of transaction fees between real estate agents, title companies, inspections, and other costs. None of that applies to renting a home, which allows people to more easily pursue that next big job opportunity or move to a community with better schools for their growing family.

Regardless of the reason they are renting a home, the option of renting a single family home is essential for families to have extra space. Think about it like this. Apartment buildings consist mostly of one-bedroom, one-bathroom apartments, but maybe some two-bedroom, two-bathroom apartments. Rent Cafe reported that the average size of an apartment in the United States in 2018 was 941 square feet. That’s just not enough space for a family of five or for a functional work-from-home arrangement.

Compare that to the average size of a single-family home in the United States in 2020: 2,491 square feet (Source: Statista). A single-family house offers almost three times the square footage, but is not three times as expensive. In fact, according to the World Population Review, the average rent for a single-family home in the United States in 2022 is only 21% higher than the average rent for an apartment.

How can investors help with home ownership?

Let’s shift gears and consider how investors are helping homeowners. A study by Freddie Mac reported that in 2018, 51% of homes in the US were built before 1980. In other words, more than half of all single-family homes today are more than 40 years old.

Most of us don’t buy a fixer-upper when buying a used car. Instead, we prefer a ‘certified’ used vehicle that has undergone a multi-point inspection with all current preventative maintenance. This is because most of us are not experienced mechanics.

Likewise, most people lack the resources, knowledge, and time to buy run-down homes and update them. There is an even more subtle consideration. Most financing for the purchase of a home in need of renovation or repair is short-term and relatively expensive.

Yes, there are some government programs that make building components available on permanent loans, but they’re not ideal for inexperienced homebuyers. Investors bring in their own capital and then borrow short-term capital to modernize the homes. This allows the homebuyer to obtain a hassle-free, relatively cheap 30-year mortgage to fund their purchase.

Here’s a data point for you. ATTOM Data Solutions found that 7.8% of all flipped homes went to FHA buyers in Q3 2021. FHA loans are insured by the Federal Housing Administration and have less stringent down payment and credit requirements.

Investors are helping first-time home buyers across the country buy renovated homes and other families get started with quality rental housing. But who are these investors? Contrary to what you might think, investors are not synonymous with Wall Street. According to data from John Burns, only 2% of SFR rentals are institutionally owned, compared to 50% of multifamily properties. The same applies to the investors who renovate and resell houses.

Ultimately, addressing the country’s housing shortage will require a variety of solutions, as well as multiple initiatives from the public, private, and government sectors. The federal government is doing its bit to expand housing solutions and Section 8 housing, nonprofits are contributing to the effort, and investors are another piece of the puzzle.

Jeff Ball is the CEO of Viseo Lending.
This column does not necessarily represent the opinions of the HousingWire editorial team and its owners.
To contact the author of this story:
Jeff Ball at [email protected]
To contact the publisher responsible for this story:
Sarah Wheeler at [email protected]

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