Rise of ‘accidental landlords’ having serious impact on America’s housing supply — what owners and renters need to know

As mortgage rates remain stubbornly high and home affordability out of reach for many buyers, a new type of rental competition is emerging in some of the country’s hottest housing markets.

“Worsening for-sale supply-demand conditions are creating new institutional competitors: accidental landlords,” notes a recent report by Parcl Labs.

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These ‘accidental landlords' are homeowners who tried to sell but couldn’t fetch the price they wanted — and instead have decided to rent out their homes until conditions improve.

“When these home sellers cannot find buyers, they face three choices: delist and wait, cut price to find market clearing level, or convert to rental. The last option creates what Parcl Labs terms ‘accidental landlords': owners who enter the single-family rental market not by design but by necessity,” the Parcl Labs researchers wrote.

It’s a growing trend that may be quietly disrupting the single-family rental market and putting pressure on big institutional landlords like Invitation Homes, American Homes 4 Rent and Progress Residential.

The phenomenon is most concentrated in the same metros where institutional landlords have historically built up large portfolios: Atlanta, Dallas, Houston, Phoenix, Tampa and Charlotte. According to Parcl Labs, those six cities represent 36.8% of all institutional single-family rental holdings nationwide.

But these same cities are now seeing home listings pile up, leading to a surge in homeowners pulling their listings and turning them into rentals instead.

Houston and Dallas saw the biggest increases in homes that failed to sell and were converted into rentals, followed by Tampa, Phoenix and Atlanta. Charlotte, an outlier, actually had a modest decline in the number of homes that failed to sell.

Meanwhile, single-family inventory is up sharply too year-over-year, averaging a 32% increase in those key cities.

This trend is part of a broader reshuffling of the U.S. housing market, where fewer people are able or willing to sell due to high mortgage rates.

Many owners who bought or refinanced during the pandemic at sub-4% interest rates are reluctant to sell and take on a new loan at 7% or more. That so-called “lock-in effect” is forcing a growing number of people to become landlords by default.

Investors large and small now make up about 20% of all single-family home purchases across the country, the Associated Press recently reported. That's what is creating these unusual competition dynamics between households and institutional investors alike.

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Accidental landlords can be a disruptive force precisely because they tend to have different priorities than professional investors.

“Unlike institutional operators who use sophisticated rent optimization strategies, accidental landlords typically price units simply to cover costs,” the Parcl report explains. “This dynamic creates downward pressure on rents exactly where institutional investors have concentrated their portfolios.”

In other words: Mom-and-pop owners are competing for tenants in the same neighborhoods as investors and corporate landlords, and in many cases, undercutting them. In the short-term, this means many renters may see cheaper rent and lower yearly rental price hikes.

On the flip side for investors, this means profit margins in these geos may not see major upside in the short-term. This shift could further strain profitability for big players in the single-family rental space, especially since many of them have become net sellers over the past year. According to Parcl, 76.7% of institutional net selling happened in just the six metros above, with Atlanta and Dallas topping the list.

With prices expected to remain flat or decline over the next year, institutional investors appear to be building up cash in anticipation of picking up some acquisition targets. As time passes, these accidental landlords could become highly incentivized to sell off to institutions or other mom-and-pop real-estate investors looking for a good deal.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.