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How affordable are the Fannie Mae Backed Single Family Rentals?

The single-family rental market has attracted significant attention in recent months.  In early 2017 Fannie Mae provided a guarantee of a nearly $1 billion loan to Invitation Homes that enabled them to refinance a large portion of their portfolio and significantly reduce their overall cost of funds.  In the time since the guarantee was provided, many industry watchers have been seeking answers that may provide guidance for future involvement of GSEs in the single-family rental market. 

 

SP Group’s recent research focuses on the relationship between Invitation Homes’ rents and affordability in the markets where their properties are located.  Our analysis sought to answer: Are the rents associated with Invitation Homes’ inventory of single family rental properties affordable in the communities where they are located?

To answer this question, we identified asking rents and locations for over 1,000 properties in Atlanta, Charlotte, Chicago, Phoenix, Sacramento, Seattle, and Southern California based on information provided on Invitation Homes’ website. 

We determined if the asking rent for each property was affordable for its location using the census tract median income and the standard definition of rent burden (where rents exceed 30% of household income)  We also calculated the income at which the Invitation Homes’ asking rent would be affordable, i.e., at or under 30% of household income.

We also examined how significant the Invitation Homes’ holdings are as a percent of the single-family rental market in each of the seven markets.  We selected Atlanta for further analysis because Invitation Homes portfolio represents almost 10% of the single-family rental market; Atlanta also had the largest number of properties listed for rent on the Invitation Home website.

 

Summary of Findings

1. Invitation Homes asking rents would burden at least one-third of residents in each of the seven markets 

We observed that at least a third of residents living in an area would be rent-burdened at the Invitation Homes asking rent.  The percent of homes with asking rents that are above the affordability threshold in each market is shown on the figure below.  In most of the markets, more than half of the properties offered would rent burden a current resident.

2. Large Majority of Asking Rents would Burden Low- and Middle-Income Households

The figure below shows the relative affordability of Invitation Homes’ asking rents by household income category.  In Atlanta, a large portion of the Invitation Homes’ asking rents are affordable for households earning $50,000 to $75,000, however, in Southern California the percent households earning between $50,000 and $75,000 that can afford Invitation Homes’ asking rents is much smaller.  In Phoenix, the percent of households earning between $25,000 and $49,999 that can afford the Invitation Homes asking rents is relatively large, while the percent in that income category in Chicago, Sacramento, Seattle and Southern California is near zero. (I would change this chart to focus on rent burden, rather than affordability, see the Atlanta chart)

A Deeper Dive - Affordability in Atlanta

In Atlanta, Invitation Homes owns nearly 7,500 single family rental properties that represent approximately 10% of the single-family rental market*.  Due to such a significant portion of Altlant’s single-family rental market being owned by Invitations Homes, we believe that depending on the geographic concentration and unaffordability of these properties, they may influence the neighborhood rents. In turn, this may exacerbate the lack of affordability for single family rentals in specific sub-markets. Our analysis focused on the Invitation Home properties in Altlanta to better understand their influence on the market.

Average rent burdens median household in 50% of Atlanta Zip Codes

The average rent for a single-family rental property in the Invitation Homes portfolio in the Atlanta MSA is $1,336**.  At an average rent of $1,336, a household earning the median income would be rent-burdened in 51% of 193 zip codes in Atlanta.

One-third of asking rents would rent burden the nearby households

​For a more granular analysis, we compared the asking rents for 244 properties in Altlanta MSA listed for rent on the Invitation Homes’ website to the median household income in the Census Tract where the property is located.  We found that more than a third of the properties have asking rents that would rent burden the typical household within the neighborhood (these properties are shown below in red). The concentration of unaffordable properties were somewhat clustered but spread throughout the metropolitan area.

Asking Rents Less Affordable for Low and Middle Income Households

We examined the distribution of Atlanta household incomes compared to the percent of asking rents resulting in rent burden. Our analysis of affordability by income category showed that Invitation Homes’ asking rents are primarily affordable for households with an annual income of above $60,000, or 49% of total households in Atlanta. For households that make under $35,000 (25% of total households), all 244 asking rents resulted in a rent burden. The chart below shows the distribution of household income by income range, represented by blue bars, and the corresponding percent of asking rents resulting in rent burden, shown by a red bar. For example, for the household income range $20,000-$24,999 - the chart shows that 5% of Atlanta households fall within this income group and 100% of Invitation Homes' asking rents would burden these homes. 

Conclusion

​Although institutional investors represent only 1.5%-2% of the single-family rental market, GSE's participation in this market can be beneficial if it is focused on the low and moderate income (LMI) sector.  While Invitation Homes' investment preferences and practices may not typify the entirety of institutional investors, we believe that there are important lessons to be learned as GSEs consider possible future financial support for transactions similar to the Fannie Mae Invitation Homes deal and the objective of promoting affordable housing.

*Reported by the Census Bureau as of their American Community Survey 2016 data.

**Average Atlanta MSA Rent as reported in the 2017 Invitation Homes' IPO prospectus.