Some of the country’s top homebuilders are focused on building single-family rental portfolios.
Build-To-Rent or Own-To Rent Homes Are “Emerging Asset Class”
Anywhere you look in farther-out suburbs in lower-cost regions around the Sun Belt you’ll see newly built, single-family homes by the hundreds or even the thousands. It could, if you were a potential homebuyer or real estate agent, make your mouth water in this inventory starved housing market.
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The problem? These brand-new single-family houses aren’t for sale. These new houses are known as built-to-rent or own-to rent homes most often sold to or built-in-partnership with investment companies that will be leased out and managed as rentals.
According to Scott Adams, a senior principal at Bassenian Lagoni, and investment firm in Newport Beach CA, “It (single-family rental neighborhoods) is on fire, is what it is. (These newly built, single-family homes) are an emerging asset class.”
More Agents in More Markets to See Such New-Build Rentals
This recent wave of own-to-rent homebuilding is stretching and will continue stretching throughout the country.
Atlanta is one market already seeing these freshly laid dead-end streets just beyond its city’s boundaries. According to Yolanda Henderson, owner of Henderson and Associates Realty in Atlanta, “We have definitely noticed this trend. It is yet one more blow against average income consumers who desire to purchase homes in the suburbs.”
San Antonio has another neighborhood market about 25 miles west of the San Antonio River Walk called The Grove at Westpointe, a new community of single-family rental homes offered by DHI Residential. DHI Residential is a subsidiary of D.R. Horton, the country’s largest by volume homebuilder. Horton‘s rental portfolio now has a single-family rental portfolio worth over $621M. The firm’s rental property inventory was valued at $385M at the end of 2020 and grew to $1.2B in 2021 and expects to generate $700M in 2022 selling rental communities to investors.
Own-to-Rent Like “New Wild West Frontier”
Industry experts call this own-to-rent frenzy the second wave of build-to-rent developments. (The first wave came about just after the Great Recession.)
Brad Hunter and his Hunter Housing Economics firm advises own-to rent developers and investors. Hunter said, “They’ve figured out ways to get more houses on an acre of land…in a way that didn’t feel cramped…and now it’s one of the fastest growing types of property in the country.”
Some developers and builders want to sell new communities to investors quickly. Others want to hold their positions for 5 – 7 years before selling. Adams with Bassenian Lagoni said, “It really is all over the place – it’s like the new Wild West frontier. It really is in response to what people want.”
Another Pandemic Driver that Reshaping the US Housing Market
Hunter with Hunter Housing Economics said, “The built-for-rent business was already taking off (pre-pandemic). There was already very strong growth in demand. What COVID did was to add to that demand…” as people wanted more open space, bigger homes and an additional room or two for remote working and/or learning. Likewise, remote working spurred people to want their own yards and walls without the necessities of home maintenance and the freedom to move when they wanted rather than being hamstrung by if/ when they sold their house.
Deana Vidal, a manager of trend consulting with John Burns Real Estate, said, “It’s not always, ‘I’m renting because I have to.’ It’s, ‘I’m renting because I don’t want to have to deal with homeownership burdens.'”
Future Growth in Own-to-Rent Market
According to the National Association of Home Builders (NAHB), Census data puts new single-family own-to-rent homes at about 5% of all single-family starts. This data, however, doesn’t include the single-family rental communities being built in partnership with an investment firm.
Hunter estimates that new home builders, both large and small, broke ground on 95,000 new own-to-rent homes during 2021. He forecasts this output to increase to 160,000 – 180,000 units per year between now and 2025.
Hunter argues that even the most prominent large construction firms such as Lennar and Rockpoint are not taking any supply away from the housing market by ramping up their investments and production in rental housing stock. “in fact, they’re bringing housing to a segment of the market that really had no options for getting into a suburban house with a yard.”
That being said, more builders and investors are putting more emphasis on building more rental housing but, according to Hunter, production is increasing while simultaneoulsy “…it’s not increasing as rapidly as the demand would warrant. There’s still a shortfall.”
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