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Developers Move Into Single-Family Rental Homes Sector

Developers Move Into Single-Family Rental Homes Sector

After the global financial crash, it seemed like the housing market would take years to work through its inventory of unwanted single-family houses—and it did. Investors bought hundreds of thousands of houses at low prices, often out of foreclosure, and put these homes out to rent. Now, however, there are far fewer homes available for sale, and many developers are turning to new construction to create new rental housing.

Northern Nevada’s largest home builder, Lennar, opened its latest community of new, single-family, detached homes, in March, in Sparks, Nev.The 80 new houses at Frontera at Pioneer Meadows are available to rent, starting at $1,499 a month for a 1,210-sq.-ft. home and rising to $1,999 for 2,182 sq. ft., according to data from ApartmentGuide. “Customers are now able to benefit from Lennar’s superior homes and experience a convenient rental lifestyle,” according to Lennar.

Overall, home builders are not building many new, single-family homes. In June, home builders started construction on new, one-unit residences at a rate of 687,000 a year. Just to compare, from the mid-1990s until the housing crash, home builders never started construction fewer than a million new single-family homes a year, according to data from the U.S. Census.

The number of single-family homes intentionally built to be rental housing is still a tiny fraction of the home building overall, but it is growing quickly from effectively zero to become a new sector of the market for new development. “Last year, approximately 25,000 detached homes were built for rent. We believe that number will increase significantly over the next several years,” according to “A New Opportunity to Build Detached Homes for Rent,” a report from John Burns Real Estate Consulting, based in Irvine, Calif.

Currently, one-in-10 households live in single-family rental housing – that’s 12.7 million of the total 120 million households now living in the U.S., according to Burns. To serve these renters, leading master-planned community builders are likely to develop new, detached homes for rent, Burns forecasts.

Starwood Waypoint, a leading owner of single-family homes to rent has worked with 12 builders to buy the new homes they produce. Until recently, Starwood bought the slowest-selling floor plans or the last few homes in a community. “They are now actively pursuing new subdivisions in areas where they currently operate,” according to Burns.

Strong outlook for housing demand

“Strong housing demand combined with continued tight supply should boost house prices by over 4 percent this year,” according to the economists at Freddie Mac. Eventually, home builders will start to increase the supply of single-family homes overall. But for now supply is expected to remain on the tight side.

“Home sales are on track for the best year since 2007,” say the economists at Freddie Mac. “We expect the economy to post a stronger second half, especially in the housing sector.”

That will continue to support home price appreciation for investors in single-family homes. At the same time, a strengthening economy will support demand for single-family rental housing. “Landlords will have the ability to keep pushing rental rates over the next four years while realizing steady appreciation on their underlying asset [the house],” according to Burns.

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