November 29, 2023

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Big landlords jump into home building as demand for single-family rentals increases

Big landlords jump into home building as demand for single-family rentals increases

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

Diana Olek | CNBC real estate reporter

With the demand for single-family rental homes soaring, large landlords are jumping into the homebuilding business to support dwindling supplies.

This push comes as more Americans have the flexibility to work from anywhere and are looking for larger spaces with outdoor areas.

“This market is massively underequipped. There aren’t enough homes that are good enough for the number of American families,” said David Singelen, CEO of American Homes 4 Rent, which has built more than 100 rental communities alone in the past five years.

According to the National Association of Home Builders, there were 13,000 new single-family homes whose rentals began in the first quarter of this year, a 63% increase from last year. Homes built for rent still represent just 5% of the homebuilding market, but that’s up from the historical rate of 2.7%, according to the association.

In Mooresville, North Carolina—about 30 miles north of Charlotte—the latest development of American Homes 4 Rent includes more than 220 rental homes with access to amenities including a pool 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 California home. They could afford the purchase, but chose to rent a four-bedroom home to their families for $2,400 a month.

“We’re not sure if home prices will really stay what they currently are. So we didn’t want to buy at the peak and then bring them down in a couple of years,” said Stephanie Murphy, 29. .

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The Murphy family also said they liked the flexibility of the rental as they learn about a new area.

Rentals are now slightly down, with some small landlords selling their homes at the top of this expensive market. But Singelyn expects to continue building homes for rent over the next few years based on the strong demand he said he sees.

“How many inquiries do we receive? How many offers? How many applications do we receive in each available home? It is two to three times larger than it was two years ago before the pandemic,” Singelen said.

Other companies investing in the construction market for rent Including Lennar, and DR Horton, Taylor Morrison, and Toll Brothers. Invitation Homes, the largest publicly traded property owner, last year entered into a joint venture with home builder Pulte Homes to build more rental homes.

Investment in single-family rentals – whether buying old homes or building new ones – has grown exponentially. The sector saw investments of about $3 billion in 2020, according to John Burns, a real estate consultancy. In 2021, the number jumped to $30 billion. It’s expected to hit $50 billion this year as institutional investors, home builders and homeowners flock to the market.

Like most big landlords, American Homes 4 Rent got into the business during the Great Recession when millions of homes were foreclosed on. The company bought cheap and distressed real estate, often at the auction yard, and turned it into profitable rentals.

There were 11.6 million households renting in 2006, at the peak of recent housing. That number rose to 15.5 million in 2014 after the housing market crash, according to John Burns, a property consultancy.

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But increasing demand and shrinking supply also means homes for rent are becoming less expensive. Nationally, single-family rents are up more than 13% compared to last year, according to CoreLogic.

“The shortage of single-family rental properties has plagued the market, driving rents up at record rates,” said Molly Bussell, chief economist at CoreLogic. She noted that the number of single-family rental properties listed early this year was well below pre-pandemic levels.

Back in Mooresville, North Carolina, the Murphy family watches how the market goes. But Jake Murphy said he doesn’t think home owning is part of the American dream, and he’s enjoying renting for the time being.

“I’m excited that you’re looking around the neighborhood, there’s like Texas and New York license plates, and then we have California,” he said.