Rental upswing
Single-family rentals booming in suburbs.
WHEN Stacey and Cliff Connor decided to move to Houston to be closer to family and expand their mattress-selling business, they found a nice house in a far northern suburb with playgrounds, walking trails and good schools for their five kids. Their four-bedroom home has many of the things they were looking for: a large living area and a yard for their two dogs.
But unlike most of their neighbors who own their homes, the Connors rent. Suburbia, often associated with for-sale signs, mortgages and homeowners associations, is increasingly becoming a place for renters.
“We wanted to be sure the kids were happy and we liked the area,” Stacey Connor, 34, said.
The movement is taking hold in outlying neighborhoods across the area from Pearland to The Woodlands.
“We’ve seen a precipitous rise in that singlefamily rental market,” housing analyst Scott Davis said. “There’s a surprisingly large number in the suburbs.”
Some of the new demand is from residents displaced by Hurricane Harvey, but the numbers were growing even before the storm.
Last year, Houstonians rented 30,166 singlefamily homes, a 14 percent increase over 2012, data from the Houston Association of Realtors show. Through October of this year, renters signed leases on 30,617 homes.
While a portion of the new renters don’t have any intention of buying in Houston, many others would like to own but can’t. They may not have a down payment or high enough credit scores to qualify for a mortgage. Millennials are often saddled with student debt.
“I have so many people call me with low credit, a broken lease or they had a bankruptcy. I think the Great Recession took a big toll on people already on the edge,” said Tirey “Ty” Counts, a real estate agent who specializes in rentals.
Compounding the problem is a dearth
of homes priced for the first-time buyer.
As Houston’s economy boomed in recent years, singlefamily home prices spiked 45 percent from 2012, said David Jarvis, senior vice president with John Burns Real Estate Consulting. Now the market for single-family rentals is underserved.
As the need has grown, more landlords are getting in the business.
Until the last few years, singlefamily home rentals were owned largely by small, local investors or individual homeowners who couldn’t sell their properties and rented them instead.
In recent years, large institutional investors have been buying big clusters of homes to rent.
National companies such as Starwood Waypoint Homes and American Homes 4 Rent have robust local and statewide operations.
American Homes 4 Rent lists dozens of suburban rentals on its website, including a two-story home with three bedrooms in Humble priced at $1,250 per month. On the high end, it offers a five-bedroom brick-and-stone home in Sugar Land for $2,950.
Houston’s average singlefamily home leased for $1,776 per month in October, data from the realty association show. That’s a 2.8 percent increase from a year earlier.
Now some of the larger rental companies are starting to offer newly built homes.
LGI Homes, an entry-level builder based in The Woodlands, launched a program this year to sell some homes to rental companies.
In the third quarter, the company sold and closed 96 homes to single-family-rental operators in four states, including Texas. In Houston, the homes were in the Cypress area.
CEO Eric Lipar said the homes are generally sold at a discount to retail prices because the builder is able to save on selling and administrative expenses. Net profits on what the company calls its wholesale business are similar to the retail side, he said.
Lipar said the sales represent a small percentage of the company’s overall business, but he expects the number of sales to grow.
“The single-family operators are looking for new supply,” said Lipar, who declined to name the companies buying from the builder. “We’re in the business of selling and building homes. We think it’s a good match.”
Across the Houston area, the share of renters in single-family homes was 34 percent in 2014, up from 28 percent eight years earlier, according to a 2016 report from New York University’s Furman Center and Capital One on the country’s 11 largest metropolitan areas. The share of renters in the Houston suburbs was 29 percent in 2014, up from 24 percent.
The typical suburban singlefamily renter is older than an apartment dweller and often has a family and pets, data show.
Maranda Linke and her two young children recently moved here from Omaha, Neb., and have been living with her parents in an apartment in Midtown. They’re all now looking to move into a rental house in Katy or Sugar Land.
Linke wants a different school for her son than the one he is zoned to. The family could buy, but they like the flexibility of renting and the hassle-free advantages that come with being able to call a landlord when something breaks.
“We don’t want to purchase because that comes with maintenance — and more taxes,” Linke said. “It has a lot more that goes with it.”
Undocumented immigrants also make up a percentage of suburban renters.
“They can’t get the financing,” said Matthew Guzman, a Re/Max agent in New Caney.
Many pay income taxes and have the money to buy, but they are often quoted higher interest rates, and that forces them to remain renters.
“In the Latin community,” Guzman said, “there are people who have been renting the same house for 20 years.”