Interior framing of a new house under construction

© Christian Delbert - AdobeStock

Building Boom: Homes Are Being Built Exclusively as Rentals

January 13, 2021

A growing number of single-family homes under construction around the country will not be listed to consumers but only made available for rent. These growing numbers of build-to-rent homes could pose greater competition for house hunters, particularly in the entry-level price points where housing shortages already abound.

Investors are building tens of thousands of homes intended to be used as rentals, believing rentals will stay in high demand in suburban locations as home prices continue to rise, The Wall Street Journal reports.

Landlords in the suburbs with single-family housing have been reporting record occupancy and fast-rising rents since the start of the COVID-19 pandemic. That’s prompting build-to-rent projects to surge nationwide. Build-to-rent giants like American Homes 4 Rent, which has built 2,500 houses in more than 60 neighborhoods and has dozens more under development, and firms like Tricon Residential Inc. have been drawn to the space over the last few years. Landlords say renters are willing to pay premiums for brand-new homes.

“Every institutional investor is considering this space,” Trevor Koskovich, who leads investment sales at NorthMarq, a property deal adviser, told The Wall Street Journal. The company is involved in several build-to-rent projects in the Phoenix area, including 943 one- and two-bedroom single-family houses.

Builders are teaming up with investors to build neighborhoods of single-family rental homes. Taylor Morrison Home Corp. predicts an increasing share of new U.S. homes—about 5% over the next few years—will be sold directly to investors. Usually, that percentage hovers around 1% for the company. LGI Homes Inc. told The Wall Street Journal that build-to-rent homes likely comprised up to 10% of its 2020 sales, or 900 homes.

Over the 12 months ending Sept. 30, 2020, more than 50,000 homes had been built specifically as rentals, according to John Burns Real Estate Consulting.

Source: 
Rental Home Construction Climbs as Purchase Prices Surge,” The Wall Street Journal (Jan. 8, 2021) [Log-in required.]