The Single-Family Rental Surge Is Squeezing Atlanta's Housing Market

Demand for single-family rental houses, among both residents and investors, is sweeping across Metro Atlanta.

As of the third quarter of last year, nearly 43% of all home sales in Metro Atlanta were acquired by investors, the single highest rate of investor activity in the single-family market of any major market in the U.S., according to real estate research firm CoreLogic.

But some housing experts are worried about the implications of the surge in investment and construction of SFR: At a time of worsening affordability and a lag in new home supply, many potential first-time homebuyers are being forced to rent instead.

“I think there are more people who would rather buy than rent, but they can't buy because they're priced out of the market,” said Christa Huffstickler, the Atlanta CEO of residential brokerage firm Engel & Völkers. “It's kind of like [developers are] saying they're building the product to fill a demand. But the truth is that prices are going up because there is not enough supply, which is creating a seller's market, which is pushing up the [SFR] supply.”

Georgia's rampant population growth has fueled high demand for all housing types. Between now and 2030, the state is projected to grow by 1 million more people to a population north of 12 million, according to the Governor's Office of Planning and Budget.

But the supply of for-sale single-family housing has generally lagged since the Great Recession as the U.S. overall faces a housing shortage.

There was a 3.8 million housing-unit deficit in the U.S. in 2020, according to Freddie Mac, and the new homes being added are generally not focused on entry-level buyers in the for-sale housing market. In 1980, 40% of new homes were geared toward entry-level buyers, according to data from the Census Bureau. In 2019, only 7% of new homes were targeted to entry-level buyers.

Into the void has stepped build-to-rent developers, who Hunter Housing Economics projects to deliver 120,000 detached, attached and horizontal single-family rental homes this year. That number is expected to jump to 145,000 homes next year, 160,000 homes in 2024 and 180,000 in 2025, with total annual delivery of BTR houses eventually surpassing 200,000 a year, according to the housing research firm.

But the institutional investment into the single-family housing market is beginning to engender some political backlash. The U.S. Senate Committee on Banking, Housing and Urban Affairs held hearings last week about how institutional investors are impacting the housing market. 

"One of the reasons housing prices have gotten so out of control is that corporate America sensed an opportunity," Sen. Sherrod Brown, a Democrat from Ohio, said during the hearings. "Private equity firms and corporate landlords and investors saw a shortage, and they saw a captive market. They bought up properties, they raised rents, they cut services, they priced out family homebuyers, and they forced renters out of their homes. Our failure to invest in new, affordable housing has left these renters with few options."

For the average person hoping to live in a detached house, the prospect of owning it has become far more daunting.

Metro Atlanta housing values have jumped 74% since 2016 — the average house in the region sold for more than $350K as of October, according to Zillow. Metro Atlanta's single-family housing price growth is projected to be 3.5% this year, according to Realtor.com, exceeding the national average of 2.9%.

The search for value has pushed residents farther and farther from the heart of Atlanta, supercharging the region's sprawl in recent years.

Proponents of BTR — the development side of the SFR industry — say many of those who live in these communities are renters by choice. They have become used to an apartment lifestyle, the argument goes, but want more space and privacy without sacrificing managed community services like maintenance and lawn care.

“We're seeing across the board that the demographics in these communities are incredibly strong,” said Michael Paul, a vice president with CBRE's SFR Southeast platform.

Many BTR residents have high incomes and high credit scores, said Paul, who is working with developers on a $1B pipeline of BTR communities throughout the Southeast.

“The majority of these people have the capability to buy, but are choosing to rent,” he said.

Windsor Stephens Holdings Managing Partner Rod Mullice said SFR is a “natural evolution” for millennials, who change jobs more frequently than previous generations.

“If you have made a commitment to be in a job for five years-plus, homeownership works for you,” Mullice said. "But if you have made a commitment to be in a job less than five years, you may get stuck in a cycle that's not favorable for you."

Whether the tenants are by choice or by necessity, their demand has led to eye-popping returns, drawing billions of investment to the sector. In 2021, return on investment on single-family rentals was 8%, the highest return of all 18 property sectors researched by Green Street, GlobeSt. reported. Today, half of all occupied housing units in Metro Atlanta are renter-occupied, according to Roofstock.

Big names in Atlanta's multifamily landscape also are jumping into the BTR and SFR markets. Kaplan Residential, Crescent Communities, Lennar Corp., DR Horton and Toll Brothers have all launched divisions or started developing properties in the sector. Wall Street giants like JPMorgan Chase and Blackstone have invested heavily in single-family rentals or rental companies.

RangeWater currently manages 20 SFR neighborhoods in 10 states, totaling 3,100 homes, Senior Managing Director Sherry Freitas said. The firm has been awarded another 50 neighborhoods throughout the Sun Belt, totaling 6,500 houses, all located within cluster subdivisions.

Freitas said RangeWater, formerly an apartment specialist called Pollack Shores, is in talks for another 39 neighborhoods this year with another 5,500 houses. (RangeWater Managing Director of SFR Karen Key is speaking at Bisnow's Atlanta multifamily and SFR event March 17.)

SFR product is appealing to would-be first-time homebuyers as a way to get the single-family space and lifestyle without having to struggle for the down payment to buy a home, Freitas said.

“It's really hard for a first-time homebuyer to come up with the big down payments, and also it's really hard for them to get a home right now. There are so many cash buyers right now. They just can't compete for a house,” she said. “It is on every conference I've been to, it is a hot topic. More and more of our clients are looking to buy or build in this space.”

The median single-family existing-home price in the U.S. rose 14.6% in the last quarter of 2021, according to the National Association of Realtors, with the South experiencing price gains of nearly 18%. NAR Chief Economist Lawrence Yun said the spike in housing prices is taking a toll on homebuyers, forcing many to come up with more cash for a purchase or to delay making a move.

“A number of families, especially would-be first-time buyers, are increasingly being forced out of the market, and this is why supply is critical to expanding homeownership opportunity,” Yun said in a statement.

Philip Kranefuss, the head of real estate for the residential brokerage startup Homie in Colorado, said once institutional investors buy a home to rent, those units rarely ever return to the for-sale market, creating more competition for would-be homebuyers in today's market. This dynamic can threaten to "hollow out" the American dream, to which homeownership is integral, Kranefuss said.

“With the way things are headed, we could be paving a nice runway for these institutional buyers,” he said. “I don't want to be all doom and gloom, I think it's going to be a slow bleed. It's just going to make things tougher and tougher."

Freitas said for many households, the idea of the American dream is shifting.

“I think there's a lot of social implications here,” she said. "When you think about either people can't afford to buy or they don't want to buy, the American dream at this point in time has moved to that flexibility model."