Sean Dobson on Rethinking Homeownership, SFR, and Housing Investment

by Dean Wehrli

The best ideas are the ones that seem obvious—“Why didn’t I think of that?” Sean Dobson saw the pile-up coming before the Great Financial Crisis (GFC) crashed the housing market. Sean and his company, Amherst built a model to assess the true value of every home in America and bet right on what followed the GFC.

Sean then had another great idea. Families who were foreclosed on were pushed out of the for-sale market but still needed a suitable place to live. So Sean pivoted to single-family rental (SFR) in the early days when there was still plenty of doubt from investors and market watchers.

Today, Amherst is a diversified financial services company for some of the largest investor entities in the world; think pension funds, major endowments, foundations, and sovereign wealth funds. SFR remains a key focus. Sean shares his insights on the SFR market, housing supply and NIMBYism, housing affordability, off-site construction, and more. Here are some highlights from the latest New Home Insights podcast episode.

Read the episode transcript

Single-family rental at scale

• Starting small in 2010 with 100 SFR homes in Phoenix, Sean knew before Amherst bought the full allotment that they could operate at scale and be profitable. That proof of concept got them a $600 million institutional investment. That’ll work.
• Now, Amherst operates over 50,000 SFR units on its highly data-driven platform. “We manage 50,000 small businesses, and each business has about $25,000 in revenue and about $10,000 of expenses.”
• Amherst provides efficiency through this scale, viewing each home as part of a larger service platform, akin to gold bars in a bullion bank. In this way, the homes remain tradable without leaving the system.

The truth about single-family rental

• There are a lot of misconceptions about who SFR renters are. Banks, many cities, and a lot of neighbors misunderstand SFR tenants, and they’re almost always wrong. These renters are folks who need housing that serves their needs, but they don’t qualify for a mortgage or, quite often, prefer to rent.
• Sean notes that the percentage of Amherst renters with children is similar to that of homeowners despite renters generally having lower incomes. Further, many Amherst residents are single parents, so they earn 1 income instead of 2.
• At the same time, these are not lower-income households. The average household income of an Amherst renter is nearly $90,000—above the national median. These are middle-income families who either cannot or do not want to buy a home at the moment.
• Yet there is resistance based on misconceptions and the Not in My Backyard (NIMBY) attitude more generally. “When people say…they don’t want a renter next door, I don’t think they’re talking about the people who live there,” Sean argues. “I think they’re talking about bad property management. If the trash is in the yard, if the car is parked on the lawn, if the home is in disrepair—that’s my fault, not the renter’s.”

What is the answer to affordability, or is there one?

• We talk about housing affordability in this space a lot. It is a crisis. Sean and Amherst have done the math, and it is daunting. “From June of 2019 to today, the principal, interest, taxes, and insurance on the same house are up 80%,” Sean said. Meanwhile, incomes for multifamily renters have only risen by 17%.
• Sean sees several contributing factors: rising land and construction costs, mortgage regulations that prevent risk-based pricing and shut out many potential homeowners, city zoning rules, and other restrictions that slow development, particularly at higher densities.
• Lack of housing affordability will be with us for a while, but one helpful policy change, Sean argues, might be more flexible mortgage options, such as interest-only loans. Sean noted that a 30-year fixed-rate loan with 10 years of interest-only payments had about the same default rate as a traditional 30-year mortgage. Interest-only loans can increase consumer buying power.
• Another possibility is more modular construction. Amherst owns a modular home factory that strives to lower costs for construction and transport. It is not a panacea, but Sean points out that millions of homes were built before 1960 with lead pipes, asbestos siding, and outdated electrical systems. “Those homes need to come down,” Sean argues, and modular construction is a way to replace them efficiently.

But that doesn’t mean we stop trying

• Sean knows, though, that long-term structural changes are needed to align wages with housing costs. But there are some things we can do, and SFR will be a big part of that. Sean says, “Housing is a consumer product just like an iPhone, and there’s not one consumer product that fits every consumer.” Whether through rental homes, financing innovations, or modular construction, the industry must continue evolving to meet the needs of today’s housing market. Dobson offers a practical perspective as affordability challenges persist: “School starts tomorrow, and I’ve got a solution that works today. If you have a better idea, put me out of business.”

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