Homebuilders and investors are looking more and more at built-to-rent houses as a way to cash in on buyers frustrated by a shortage of homes and soaring real estate prices, the Associated Press reported.
Builders began construction on 16,000 single-family homes slated to become rentals in the third quarter this year, the highest quarterly since at least 1990, according to the National Association of Home Builders' analysis of U.S. Census data.
The analysis includes only homes that builders will keep and rent out to tenants and excludes any that were built to be sold to real estate investment trusts or investors planning to put the properties up for rent, AP reported. Overall, individual homeowners and mom-and-pop investors still control the vast majority of single-family homes for rent.
The rental homes that builders broke ground on in the third quarter made up just 5.4 percent of all single-family homes that began construction in the same time period. But builders confident in the potential of the single-family home rental market are planning to build even more rental homes for corporate landlords and investors looking to entice people who can't afford to buy a house, according to AP.
"Traditional builders are finding it very hard to do entry-level housing," said Ali Wolf, chief economist at Zonda Economics, which tracks the real estate industry. "The build-to-rent space kind of serves its purpose as being entry-level housing in a market where new homes at a reasonable price point are few and far between."
For more reporting from the Associated Press, see below.
Rising home prices and fierce competition for relatively few affordable homes for sale are stretching the limits of affordability for many would-be buyers. The median price of a previously occupied U.S. home jumped to $353,900 in October, a 13.1 percent increase from a year earlier, according to the National Association of Realtors. Homes sell within days of being put up for sale.
These trends have been good news for landlords, however. Rents for U.S. single-family homes jumped 10.2 percent in September from a year earlier, according to real estate information company CoreLogic. The firm excludes apartments from its single-family home rental data, though it includes condominium and townhome rentals.
CoreLogic expects rents to continue climbing through at least the end of this year, citing strong demand, low supply of homes for rent and a strengthening job market.
Recent quarterly earnings from the nation's two largest publicly traded owners of single-family houses for rent underscore the favorable outlook.
Invitation Homes and American Homes 4 Rent both reported strong third-quarter results, boosted by rising rents and occupancy rates near all-time highs.
BTIG analyst James Sullivan reiterated his "Buy" rating for both real estate investment trusts, or REITs, noting that housing market trends, including the supply chain challenges and rising labor and material costs that are slowing the pace of construction for homebuilders, remain "very favorable" for single-family rentals.
Construction of new U.S. homes was running at a seasonally adjusted annual rate of 1.52 million units as of October, according to the Commerce Department. That's an increase of 0.4 percent from the rate a year earlier. But single-family home starts fell 3.9 percent from September to October and were down more than 10 percent from last year.
The number of housing starts for built-for-rent houses remains small relative to newly started homes slated for sale. All told, builders broke ground on 47,000 homes for rent over the last four quarters, a year-over-year increase of 17.5 percent, according to the NAHB. In the same period, builders broke ground on 1.14 million single-family homes.
Some of the nation's largest homebuilders are looking to take advantage of the demand for build-for-rent homes.
Some sell houses to investors or companies looking to take over communities already packed with tenants. In July, PulteGroup announced a deal to build and sell roughly 7,500 homes over the next five years to Invitation Homes.
D.R. Horton has been building apartment complexes and also single-family rental home communities. This month, it estimated that its rental operations will generate more than $700 million in revenue from rental property sales during its current fiscal year. Horton also said it expects to increase its investment in its rental business by more than $1 billion in the same period.
This spring, Lennar formed a venture with several institutional investors that aims to spend more than $4 billion to buy new single-family homes and townhomes from the homebuilder and, potentially, other builders, and then rent them.
"It's really evolved over time, but the star of the real estate show today is the build-to-rent space," Wolf said.
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