Single-family rentals present a big opportunity for builders and developers looking for a new niche
During the recession, a fairly popular diversification tactic for single-family builders was to build a few multifamily rental projects and hang onto them. Some felt it was a good hedge against the rapidly disappearing for-sale market and others considered it a possible way to convert renters into eventual buyers. Most, however, did not think of it as a long-term play. Surely, as the market recovered, they would go back to doing what they do best—building and selling single-family homes (Image: Geralt via Pixabay).
But this recovery proved to be different in many ways, not the least of which was its rapidly mounting affordability issues. It appears that having one foot in the rental market is not such a bad idea. A surprising 10 percent of primarily single-family builders on our 2016 Housing Giants list reported completing rental projects in 2015. Irvine, Calif.-based Sares-Regis Group is forgoing building for-sale homes entirely.
This trend toward including rental housing as a part of a home builder’s portfolio seems likely to continue. A diminishing supply of new homes for sale and increasing prices are helping drive more and more potential buyers toward renting. Millennials, who would ordinarily be in their prime homebuying stage of life, are continuing to wait and many Boomers, instead of selling their large homes and buying smaller ones, are downsizing all the way to not owning at all.
But not everyone who is unable or unwilling to buy is content to live in an apartment. New families who want more space and a yard, as well as empty nesters who are looking for a lock-and-leave lifestyle but still want to live in a single-family home are presenting a big opportunity for developers and builders looking for a new niche—single-family rentals.
According to John Burns Real Estate Consulting, 12.7 million of the 120 million households in the U.S. currently live in single-family rentals. Most of these properties are owned and managed by individuals and by investors that have been very successful buying up foreclosures by the armloads and renting them out.
But there aren’t nearly enough of these homes to cover the demand for single-family homes to rent, and builders are stepping up to fill the gap. Burns reports that about 25,000 detached homes were built as rentals in 2014, but that number is on its way up.
Lennar CEO Stuart Miller admits that his company is “still in the experimentation phase” of offering detached rentals. Lennar’s Frontera at Pioneer Meadows, a community that opened last year in Sparks, Nev., a suburb of Reno, started out with 80 homes and now will have 236 at completion. The firm is in the planning stages of another single-family rental development outside of Bakersfield, Calif.
But some developers and builders are going all-in. Newport Beach, Calif.-based AHV Communities has 1,000 homes in its pipeline in Texas, all for rent. Offering one- and two-story floor plans, AHV’s homes are designed and built just like its nearby for-sale neighbors with high-end finishes and appliances. Its communities offer the amenities of today’s master plans, as well—a clubhouse, fitness center, pool, walking trails, and open space. The developer is bullish on its prospects and is hoping to expand to Tennessee, North Carolina, and perhaps even California.
NexMetro, profiled in our feature on rentals, is targeting its communities in Phoenix, Dallas, and Denver at “renters by choice.” The company’s business plan includes expanding into more areas where it will build 500 to 600 homes each year.
It just may be an idea whose time has come and one we may see a lot more of—one more way of offering a chance to live in a new home to those who, for a variety of reasons, won’t buy.