It's not just a lack of houses in general, there's a specific kind of housing shortage in the United States. While new construction activity has increased slightly in recent years, it hasn't kept pace with household formation, which is the number of new households created each year. According to a recent study published by realtor.com, this has led to a growing gap between the number of homes available and the number of people who need them. The study shows single-family homes are underbuilt by 7.2 million. The analysis also states that if you include multi-family the shortage falls to 2.5 million.
There are two key factors at play here:
- Single-family home shortage: The biggest gap is in single-family homes, which are traditionally what families aspire to own. This is due to a lack of new construction of single-family homes in recent years.
- Multi-family construction doesn’t meet the needs of today’s homebuyer: New households aren’t finding what they are looking for in multi-family housing. Whether it be a preference of ownership vs. rental, or simply seeking out living arrangements in a particular location with more square footage, larger yards, more privacy, the housing shortage is not going to be solved with massive multi-family developments. Most of these multifamily properties are not condominiums to own, and those that are still come with their share of disadvantages & risks (e.g. significant, rising and unexpected HOA costs).
Single-Family Homes: A Diamond in the Rough Housing Market
The housing market presents a complex landscape for investors. While headlines scream "shortage," a closer look reveals a hidden opportunity: single-family homes. Here's why this asset class deserves a prominent place in your investment portfolio.
Unrelenting Demand, Limited Supply: Household formation, driven by demographics and lifestyle shifts, continues to outpace new single-family home construction. This persistent underbuilding has created a structural imbalance, leading to a market with high occupancy rates and rising rents & home prices.
COVID and the Rise of Suburbia: The pandemic reshaped our priorities. The desire for private space and flexible living areas has fueled demand for single-family homes, particularly in suburban areas. This trend shows no signs of abating.
Stable, Predictable Returns: Single-family homes offer investors a tangible asset with consistent cash flow. Rents on single-family homes tend to be less volatile than those of multi-family units, providing a reliable source of income. More often though, single-family homes are owner occupied, and net-new inventory is a key need to keep up with ever growing household formation, that is: there will always be new families that need houses.
Appreciation Potential: The underlying demand for single-family homes, coupled with limited supply, suggests a strong potential for appreciation in the long term. As the housing shortage persists, well-maintained single-family homes are likely to become even more valuable. Only homeowners, not renters, will participate in this appreciation, catalyzing the push to seek out single-family residences.
Diversification and Stability: Investing in single-family homes adds valuable diversification to your portfolio. Unlike the stock market, which is susceptible to sudden swings, real estate offers a hedge against inflation. Single-family home values tend to rise with inflation, protecting your investment's purchasing power.
Who is Going to Solve This?
The underbuilt single-family home market presents a unique opportunity for investors seeking a product with proven, studied demand. Upright supports professional builders & remodelers in adding new (and improved) single family homes to growing markets across the United States.
