Build-to-rent takes hold in US as home ownership declines
It was a rare lucrative business for Wall Street in the aftermath of the financial crisis: snapping up properties in foreclosure and renting them out. So good, in fact, that now, as the distressed pool dries up, some investors are refusing to let the rental-model fizzle. They're building more and more of the houses themselves.
American Homes 4 Rent, a five-year-old real estate investment trust (Reit) and the biggest of the publicly traded landlords, is buying lots and houses around the US. No. 2 Colony Starwood Homes plans to purchase at least 600 newly built properties over the next year from more than a dozen builders. Privately held AHV Communities LLC is plotting whole neighbourhoods for those who want - without the bother of ownership - single-family residences with some apartment complex bells and whistles, such as fitness centres and bocce-ball courts. Residents don't even have to mow their lawns.
The bet behind the build-to-rent (BTR) boom is that there are enough people who dream of the detached-house life but can't afford to buy into it. With tight mortgage standards and rising prices, and millennials putting off marriage and loaded up with student debt, that might not be a long shot.
As it is, the home ownership rate in the US has been hovering for a while near a 51-year low, according to US Census data, though that could be changing: the number of owner-occupied homes rose faster than the number of renting households for the first time since 2006 in the first three months of the year.
At this point, Invitation Homes, the Blackstone Group LP-backed rental-home Reit and the largest of the companies, with about 48,000 houses, is sticking with the original business model, even though foreclosures are at their lowest level since 2005.
"Some builders get a little bit of fatigue at the end of trying to close out an existing community, and they have maybe 10, 15, 20 remaining homes," Colony Starwood chief financial officer Arik Prawer said on a February conference call.
By the same token, he said: "Some builders love to just get some momentum going in a new community, and like for us to buy a strip of homes upfront just to get it going." Colony executives said earlier this month that they have three communities in the works, where every home is a newly built rental, and eight more planned.
Lennar Corp., the second-largest US homebuilder, created its own rental-only community in Sparks, Nevada, a Reno suburb, starting with about 80 homes in 2015. Now there are 225, with all but two occupied as of last month, according to the local leasing office.