BETHLEHEM, PA — Single-family rentals, a market whose growth remains steady even during recessionary times, has become “critical” to the kitchen and bath industry, accounting for roughly 13% of the nation’s total kitchen/bath remodeling spending in 2023, according to a 2023 forecast issued by the National Kitchen & Bath Association.
The NKBA’s annual forecast estimated the current single-family rental (SFR) market at nearly 15 million units, a 3.1-million-unit increase since 2001. Renovations tied to those units are forecast to account for an estimated $8.5 billion in kitchen and bath spending, the NKBA said – noting that while forecasts for a recession have risen, the SFR industry is projected to see steady growth through 2025.
According to the NKBA, institutional investors are spending an estimated $3 billion annually in U.S. residential construction – including $1 billion in spending from “built-to-rent” operators – with investors increasingly using higher-quality products and materials than basic ‘for-sale’ builders, “because they expect to own SFRs for 15 years or more, ultimately protecting the value of the home with the assumption that tenants will remain in the properties longer.”
Investors who purchase an older home for rental typically spend about 10% of the purchase price on renovations, involving value-added upgrades, and more than 70% of those investors make both kitchen and bath upgrades prior to offering the home to tenants, according to the NKBA.
Kitchen and bath renovations made by institutional investors lead to higher incremental rent than other household upgrades. On average, every dollar spent on kitchen and bath upgrades yields $2.40 in incremental rent.
Institutional investors are also responsible for an additional $2 billion “boost in indirect kitchen and bath spending,” the Bethlehem, PA-based trade association said, adding that SFR occupancy rates remain at nearly full capacity, due in part “to rent increases that are pricing some tenants out, as well as additional built-to-rent supply in some markets.”
“The enduring high occupancy rate demonstrates the strength of this market category, and with housing inventory remaining low in 2023, the demand for SFR properties will remain strong,” the NKBA observed, “especially given these units’ larger average footprint compared to other rentals.”