Large landlords jump into home construction as demand for single-family homes soars

Jake and Stephanie Murphy are moving into a new single-family home built by American Homes 4 Rent.

Diana Olick | CNBC Real Estate Reporter

As demand for single-family rentals soars, large landlords are jumping into the homebuilding business to take advantage of the dwindling supply.

The push comes as more and more Americans can work flexibly from anywhere and are looking for larger spaces with outdoor areas.

“This market is very under-supplied,” said David Singelyn, CEO of American Homes 4 Rent, which has built more than 100 rental-only communities over the past five years.

According to the National Association of Home Builders, 13,000 new single-family homes started renting in the first quarter of this year, up 63% from a year ago. Built-to-let homes still make up just 5% of the home-building market, but that’s up from the historical average of 2.7%, according to the association.

In Mooresville, North Carolina – about 30 miles north of Charlotte – American Homes 4 Rent, the latest development includes more than 220 rental homes with access to amenities including swimming pools and fitness centers . Landscaping and maintenance are included in the rent.

Jake and Stephanie Murphy, who have been able to work remotely since the pandemic, are among those who have moved into the community after selling their home in California. They could afford to buy, but chose to rent a four-bedroom home for their family for $2,400 a month.

“We’re not sure if house prices are really where they are right now. So we don’t want to buy at the top and then drop for a few years,” said Stephanie Murphy, 29. . .

The Murphys also said they enjoy the flexibility of renting as they learn about a new area.

Rental numbers are currently down slightly, as some smaller homeowners sell their homes at the top of this expensive market. But Singelyn is expected to continue building rentals over the next few years based on the growing demand he says he is seeing.

Singelyn said: “How many requests do we get? How many screenings do we get? How many applications do we get on every available home? It’s two to three times bigger today than it was two years ago,” says Singelyn. pandemic,” Singelyn said.

Other companies invest in the construction rental market including Lennar, DR Horton, Taylor Morrison and Toll Brothers. Invitation Homes, the largest publicly traded landlord, last year entered a joint venture with homebuilder Pulte Homes to build more rental homes.

Investments in single-family rentals – both buying a second-hand home and building a new home – have increased dramatically. According to John Burns Real Estate Consulting, the sector has seen an investment of around $3 billion in 2020. By 2021, this has grown to $30 billion. It is expected to hit $50 billion this year as larger institutional investors, home builders and homeowners flock to the market.

Like most large homeowners, American Homes 4 Rent started its business during the Great Depression when millions of homes were foreclosed on. The company took low-priced, restricted properties, often in the auction block, and turned them into lucrative rentals.

There were 11.6 million rental households in 2006, at the highest end of housing terms. That number rose to 15.5 million in 2014 after the housing market crashed, according to John Burns Real Estate Consulting.

But growing demand and tight supply also mean rental housing is becoming less and less affordable. Nationally, single-family rents are up more than 13% from a year ago, according to CoreLogic.

“The lack of single-family properties available to rent has hammered the market, pushing rents to record levels,” said Molly Boesel, principal economist at CoreLogic. She noted that the number of single-family rental properties listed earlier this year was far below pre-pandemic levels.

Back in Mooresville, North Carolina, the Murphys are watching how the market plays out. But Jake Murphy said he doesn’t believe home ownership is part of the American Dream and that he’s enjoying renting now.

“I’m excited because you look around the neighborhood, there are license plates like Texas and New York, and then we have California,” he said.

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