Housing market spurs growth of single-family rental homes
LOS ANGELES — Homebuilders and other real estate companies are increasingly betting that would-be homebuyers frustrated with a shortage of homes for sale and runaway prices will settle for renting their slice of the American Dream.
While individual homeowners and mom-and-pop investors still account for the vast majority of single-family rental homes, homebuilders have stepped up construction this year of new houses being built for rent. In the third quarter, builders broke ground on 16,000 single-family homes slated to become rentals. That’s the highest quarterly total of housing starts for built-torent homes going back to at least 1990, according to an analysis of U.S. Census data by the National Association of Home Builders.
The trade association’s analysis includes only homes that builders are going to hang onto and rent out. That excludes homes being built to be sold to real estate investment trusts or investors planningon renting the properties.
While those rental homes accounted for only 5.4% of all single-family housing starts in the third quarter, builders are doubling down on the build-for-rent model, with some already aiming to build more homes for rent for investors or corporate landlords eager to capitalize should potential homeowners continue to struggle to find affordable properties.
“Traditional builders are finding it very hard to do entry level housing,” said Ali Wolf, chief economist at Zonda Economics, a real estate industry tracker. “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.”
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% 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% 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.
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 yearover-year increase of 17.5%, according to the NAHB. In the same period, builders broke ground on 1.14 million single-family homes.
“It’s really evolved over time, but the star of the real estate show today is the build-to-rent space,” Wolf said.