Single-Family Homes Are Dominating Apartments in Rent Growth

In This Article

According to a new study from Zillow, single-family rental (SFR) homes are outpacing apartments in rental pricing by 20%. The listing giant’s rental market report for December 2024 shows a wider-than-ever gap between the two rental sectors, which only appears to be increasing.

Zillow analyzed the 50 largest U.S. metro areas and made the following determinations:

• In December, the typical asking rent for a single-family home was $2,174 per month, up 4.4% over the past year and 40.6% since the start of the COVID-19 pandemic.
• Apartment rents averaged $1,812 per month in December—up 2.4% year over year and 26.2% higher than pre-pandemic levels.
• Concessions are being offered on two out of every five rental properties offered on Zillow.
• For-sale inventory continues to recover but is still 25% below pre-pandemic norms.
• The widest discrepancy between single-family and apartment rental pricing was in Salt Lake City, where SFRs were 59% more expensive than multifamily units. Detroit had the smallest percentage at 9%, and Pittsburgh—having undergone a single-family construction boom in recent years—had a low 14% difference.
• In December, Denver joined Austin and San Antonio, Texas, as the only metro areas where rents have fallen since 2023. However, rents fell monthly in 32 major metro areas. The largest monthly drops were in Denver (-1.3%), Salt Lake City (-0.6%), San Jose (-0.6%), Portland, Oregon (-0.6%), and Austin (-0.5%).
• Rents rose from 2023 levels in 47 of the 50 largest metro areas. Annual rent increases were highest in Hartford, Connecticut (7.9%), Cleveland (7%), Richmond, Virginia (6.5%), Providence, Rhode Island (6.2%), and Chicago (5.8%).

As is often the case, supply versus demand was the main reason for the increasing rental discrepancy. 

Skylar Olsen, Zillow’s chief economist, said in a press release:

“Right now, more multifamily units are hitting the market than at any time in the past 50 years, but detached homes aren’t seeing the same surge in construction. We’ve also got the large millennial generation wanting to move into a larger space. High and unpredictable mortgage rates and hefty down payments are pushing some to rent that lifestyle instead of buying it. Similarly discouraged, some homeowners may return to the market and sell to capitalize on record prices, rather than continue to wait for lower rates.”

An Apartment Building Boom Results in Record-High Numbers of Concessions

The deluge of new apartments has resulted in property managers offering potential tenants concessions such as a month’s free rent or free parking to fill units. Another interesting fact is that millennials are now renting for far longer than previously before buying a home—another reason for the delay in building single-family homes versus apartments. 

Zillow’s latest Consumer Housing Trends Report found renters’ median age to be 42 in 2024, up from 33 just three years prior.  The study concludes that the number of new apartments means that concessions in the multifamily sector will likely continue.

Single-Family Homes Are Fueling Rent Growth Backed by Wall Street 

The cost of buying a single-family home, along with high mortgage rates and insurance costs, is proving prohibitive for potential buyers. Families looking for the convenience of living in a single-family home and a suburban lifestyle in a good school district are prepared to pay ever-increasing rents for the privilege. 

Wall Street is heeding the demand, buying into and funding buy-to-rent communities, and driving up rents. Blackstone, Invitation Homes, and Pretium Partners are among the big Wall Street firms expanding their build-to-rent portfolios. According to the National Association of Realtors analysis of U.S. Census Bureau data, the share of build-to-rent housing starts doubled to 10% of overall single-family housing from 2021 to 2023.

However, there’s a dark side to this trend. Invitation Homes, the biggest single-family rental operator in the U.S., agreed to pay the Federal Trade Commission $48 million in September 2024 to settle charges related to deceptive rental pricing practices and unfair evictions. 

“When institutional investors or larger landlords own the rental units, we see an increase in the number of evictions for tenants,” Ruth Jones Nichols, a former housing official in the Biden administration who now serves as executive vice president of programs at the Local Initiatives Support Corp, told the Wall Street Journal. 

Should You Buy a Single-Family Rental or Apartment Building in 2025?

It’s almost impossible to say what is a better investment—a single-family home or a rental—because it depends largely on an investor’s goals, funding, and appetite for risk. There are pros for both. Multifamily investors like Grant Cardone swear by multifamily investing for obvious reasons: scalability and cash flow. 

However, no discussion about investing is credible unless location is factored into the equation. A single-family home in a good neighborhood is liable to outperform a similarly priced multiunit in a high-crime neighborhood over the long run, giving you far fewer headaches along the way. 

Here are some factors to consider.

Scalability

If you want to scale a portfolio and build your door count, you must invest in multifamily rentals. Again, the caveat for this is the quality of the multifamily units you are investing in. There is no point in investing in 1,000 doors that do not cash flow (for various reasons: poor tenant pool, overleveraging, high repair costs). A single-family portfolio in good neighborhoods with sensible financing makes more sense. 

Risk

The Cardone argument generally holds true here. All things being equal, you are mitigating your risk with a 16-unit multifamily or more rather than a few single-family units in the same neighborhood for a similar price simply because one vacancy won’t kill your cash flow with a multifamily building.

Appreciation

Single-family homes are appreciating at a clip these days and are in high demand for rentals. However, the great thing about a multifamily with over four units (the more units, the better) is that an investor can force appreciation by doing repairs and increasing rents. Unlike single-family homes, multiunits are valued based on rent roll, not comps. For this reason, it is easier to plan an exit strategy with a multifamily building than a single-family one.

Financing

There are many arguments to the financing equation. However, for the rookie investor, single-family or small two-to-four-unit multifamily properties are easier to finance than larger multifamily buildings. That’s because commercial buildings (five units and more) require a 25% to 30% down payment, whereas one to four units can be financed with an FHA loan (3.5%), providing the investor lives in the unit for at least a year. Beyond that, the argument changes because investors can use 1031 exchanges to continue to scale their portfolios. 

Tenant turnover

Single-family homes have less tenant turnover than multifamily units. Assuming you have purchased your single-family home in a decent neighborhood, a single-family portfolio will likely give you fewer headaches than a multiunit. That, however, is a broad generalization, and there are always exceptions. 

Final Thoughts

If you are on the fence about buying a single-family rental or a multiunit—all things being equal—you need to size up the competition. If hundreds of new apartment buildings are springing up around you, with deep-pocketed landlords offering concessions to move in, it will generally be hard for an investor to compete unless they can offer a similar product at a lower price. Many renters are willing to pay a few hundred dollars more per month to be in a new amenity-filled building than an older multiunit building without amenities.

There is generally less competition in the single-family arena. However, build-to-rent communities could also pose competition, so as an investor, you need to pick your location carefully to maximize demand and minimize competition.