Rents and home prices skyrocketed during the pandemic-fueled housing boom, and they’re still high, but demand continues to remain strong.

“Unbelievable demand has sort of been the story of the last five to seven years,” Invitation Homes’ chief executive Dallas Tanner recently told CNBC, “and that’s due to really the villain being supply. We continue to talk about this lack of supply; we need somewhere between three and five million more housing units.”

The rental market began to soften toward the end of 2023 and into the beginning of 2024 because of an uptick in multifamily construction, but it seems to be more of a short-term phenomenon rather than something that would meaningfully bring rents down. As of last month, rents were 21% higher than they were before the pandemic, according to Rent.com.

There are varying estimates for the housing shortage, but by one estimate, we’re missing between two and seven million homes. That, coupled with strong demand, is keeping costs up—but to understand how we’ve reached this point, we have to go back several years, Tanner said.

“We had a decade of really cheap money in the housing market,” he said, “while we’ve had regulation at the local and state levels get trickier and trickier for people to be able to develop and build new products with ease. That combination is a perfect storm for housing prices to stay elevated for some period of time even while maybe we’ve been in a slower growth cycle.”

Essentially, for several years, interest rates were extremely low. That translated to lower-than-ever mortgage rates throughout the pandemic. Historically low mortgage rates, which equate to lower borrowing costs—and a newfound ability to work from wherever—fueled a housing boom. Home prices went up, and rents followed. But that’s not all: Building homes can be extremely difficult. California is basically ground zero for the nation’s housing crisis, and the reason it can’t build more homes comes down to local control and NIMBYs (not-in-my-backyard, anti-development residents).

So, constrained supply isn’t just pushing up rents. Home prices are almost 50% higher since the start of the pandemic, according to Capital Economics. And mortgage rates that reached just above 8% last year—and are still much higher than the historic lows from the pandemic—haven’t pushed home prices down. Instead, higher mortgage rates triggered the so-called lock-in effect, which has further tightened supply as homeowners hold onto their homes, refusing to sell. It’s largely why existing home sales fell to their lowest point in almost three decades last year.

“The consumer is having a hard time making a decision about buying something in a market that is undersupplied, quite frankly, by probably 40% or 50% more than we’d like to see it from a resale perspective,” Tanner said.

Invitation Homes is an institutional investor, and it has the second largest portfolio of single-family homes in the country—more than 84,000, according to its 10-K. Although in his interview with CNBC, Tanner said the company owns and operates over 100,000 homes across 16 major markets. Tanner mentioned Invitation Homes sold around 12,000 homes over the last five years, and said “we have an insatiable amount of demand for that product.”

His own business seems to be doing well. Invitation Homes’ revenue went up 8.6% last year to roughly $2.43 billion, partly due to an increase in the average monthly rent per occupied home, and an increase in occupancy. In his mind, there’s a reason why that is.

“I think there is sort of this missing segment for people that don’t necessarily want to be in an apartment, but are looking for a single-family home with a yard and a garage and better schools…while not having a down payment that is burdensome,” Tanner said, explaining the strength of the for-lease business.

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