SFR versus MF is a new competition with high stakes
While there is no single universally accepted definition, Single Family Rental (SFR) housing is generally understood to mean purpose-built communities of detached, semi-detached or terraced houses, as opposed to Multi-family (MF) blocks of apartments usually financed by institutional investors.
The SFR challenge to multifamily
With the growth of UK SFR, lessons for MF rental housing can be learned from the dynamics between the two in the United States where SFR constitutes 12% of all housing.
US SFR has become increasingly disruptive to MF, with the two often competing for the same residents. However, MF companies can make adjustments to soften SFR’s impacts on their business.
Typical renter demographics
Customers of investment-grade housing typically seek internal and external space in communities with amenities.
Key renter segments include: millennials with young families who cannot afford home ownership; previous single-family homeowners going through a life transition (relocation, marriage, divorce or death of a partner); down-sizing empty nesters who want a comparable but care-free quality of life; and people of all ages who can afford to buy and own but have other financial priorities.
What SFR does differently
The pandemic has shifted customer preferences.
Many are now working from home (and some may continue doing so) as businesses are also shifting their attitudes toward their own space.
This shift affects the whole family, especially when children have been schooled virtually in the living room or kitchen. SFR typically offers more floor space and bedrooms, along with privacy and greater ability to maintain social distance.
SFR builders and investors alike have been learning important lessons from the MF sector such as how to ‘amenitise’ communities to deliver an aspirational lifestyle experience.
They are using multi-family applications, property management systems and screening practices. As the market matures, we can expect development of more complete and robust solutions specifically for this asset class, particularly for revenue management.
How MF owners/operators can compete with SFR
SFR is a growing competitor that MF companies should factor into their approach to pricing, technology, marketing, operations, and work sourcing strategies.
Pricing
MF operators should understand SFR rental rates in markets where they are competing for residents.
Competitive pricing analyses – as for other MF properties in the same market – should be factored into pricing strategies. This is especially important where the MF manager has properties with larger units, for example, three or more bedrooms, which more directly compete with SFR offerings.
Pricing technology that proactively anticipates human behaviours, based on a resident’s history of interactions, along with market data can be used to assist in driving both revenue and resident retention.
Technology
MF technology solutions should provide a customer experience equivalent to SFR.
Technology-enabled self-guided tours for prospective residents – a widespread practice in the US SFR sector – should now be the UK MF norm alongside smart-home features such as remote access, keyless entry, temperature and light management, and high-tech security systems.
Artificial Intelligence can help in responding to calls and texts 24/7 for leasing, maintenance requests and emergencies.
Marketing
MF marketing should highlight the space both in and outside of the unit, such as open outdoor areas and business centres.
Operators leasing larger (three or more bedrooms) should highlight them as they are less common in apartment buildings but more competitive with SFR properties.
MF can offer both traditional and newer amenities and services that are not always available in SFR communities. These include fitness centres, co-working spaces, and package lockers (ensuring that delivered items are not stolen from the front porch). After prospective residents have taken self-guided tours of apartments, operators should complement the experience with timely, personalised leasing agent follow-up.
Operations
In addition to smart-home technology, many renters want a pet-friendly environment, convenient laundry and more space – all of which are typical of SFRs. Strengthening retention is also important – offering incentives for longer lease terms can help.
Enabling residents to have rent payments reflected on their credit report to help them build a good credit history is advantageous to both resident and owner.
As UK MF operators grow in size and geographical reach, they will have the opportunity to facilitate the relocation of residents – whether moving across a town or the country – with seamless transfers to other company-owned properties, which in turn strengthens brand awareness and loyalty.
Resource Model
MF companies can learn from the SFR work-sourcing model, which includes out-sourcing some key functions to third-party strategic business partners.
This would include a review of the traditional MF model of having full-time employees at every property, and instead switching to alternative approaches for increased flexibility, reduced expenses and improved customer satisfaction.
One example is using outsourced maintenance staff to serve multiple properties, dispatched by a central call centre (whether this is operated internally or externally).
Further Resources
In this paper the authors consider the emerging Single-Family Housing (SFH) sector and contrast it with Build-to-Rent as an investment class. This means exploring the operational differences, the opportunities and its potential. They also make a distinction between urban and ‘Suburban Build-to-Rent’ (SBTR) which can include low rise apartment blocks as well as houses.