If you’ve been up to date on recent commercial real estate market trends, you’ll find a lot of evidence pointing to multiple reasons as to why single-family rental companies are starting to lean towards home builders. Below are a few reasons why this shift is occurring, keep reading to learn more.
SFR companies’ need for new housing inventory has led to their increasingly cozy relationship with home builders, one that‘s also contributing to a rise in “built-to-rent” housing, where a home builder sells a house directly to an entity that intends to rent it.
While the scale of built-to-rent activity is still relatively small and mostly casual, there are already signs that more formal partnerships or mergers between SFR companies and home builders are on the horizon. There are also new companies that build entire single-family subdivisions with the express purpose of renting the units themselves.
“I think you can just read the tea leaves and see that there are definitely relationships emerging in the industry,” said Rick Palacios, Jr., director of research at John Burns Real Estate Consulting.
Built-to-rent single-family homes are nothing new. In the mid-1980s, built-to-rent housing regularly topped 30,000 units during any given 12-month period. In the run-up to the housing collapse in 2008, the pace of built-to-rent housing topped more than 40,000 new units before dropping to 12,000 in 2009, along with everything else related to the housing during the bust.
Today, built-to-rent housing has climbed back to about 30,000 units over a rolling 12-month period. Most of the stock is built in suburban markets in the southeast and southwest, where single-family housing is already predominant. Those markets also happen to be where SFR companies are most active.
In the past, built-to-rent homes were sold to the type of small “mom and pop” single-family rental investors that still make up the vast majority of the 16-million-unit SFR industry today. But the rise of institutional SFR companies, which together rent somewhere around 250,000 homes, and their impact on built-to-rent housing, is a new development.
“While we’re looking at slightly elevated levels of [built-to-rent] activity taking place, it still does represent a small amount of market,” said Robert Dietz, chief economist for the National Association of Home Builders. ”For the most part, it’s mom and pop owners. It’s individuals, not the institutional ownership, which is hundreds of thousands rather than millions.”
Institutional SFR companies have capitalized on an increase in demand for single-family rental housing from people who since the financial collapse either can‘t or don‘t want to own a home. Between 2005 and 2016, the number of renter households increased by almost 10 million, bringing the total to a record 43.3 million, according to the National Low Income Housing Coalition.