Builders will build it, if you rent it
The build-to-rent market is exploding in growth, CNBC reports. While homebuilding in general has underperformed in recent years, one segment of residential construction has seen large growth: Building a home with the intentions of renting it out.
In 2017, 37,000 homes were built as rentals; that number rose to 43,000 last year, or just under 5 percent of total single-family housing starts, the National Association of Home Builders reports. That number is likely much less than the true number of homes built as rentals. The number reflects just the homes built and held by builders for rent and does not include those sold directly to investors, CNBC reports.
“There is a consumer rental demand that is driving these institutions to want much greater levels of inventory of this product,” Gerald Ellenburg, CEO of ERC Homebuilders, told CNBC. “They are learning or have learned that new inventory is a much safer and more official rental product.”
Several homebuilders are entering the build-to-rent market. For example, Toll Brothers, a big name in residential building, recently announced a $60 million investment with BB Living, a build-to-rent firm in Phoenix. Lennar, the nation’s largest homebuilder by revenue, announced this week that it will be expanding more into the build-to-rent space, after a successful pilot in Sparks, Nevada.
“This is the first in what we believe will be an ongoing business strategy and relationship where we build and sell homes in bulk on land owned by third parties with no lease-up risk,” Lennar President Rick Beckwitt said on a recent earnings call.
“It’s viewed as an ancillary income stream,” Toll Brothers CEO Douglas Yearley said at the firm’s second-quarter earnings conference call last month. “We see this as more and more renters may prefer to raise a family or live in a single-family versus an apartment complex or community or building.”
ERC Homebuilders, a Florida-based builder, is launching an IPO this week to try to raise $100 million to build more than 1,000 rental homes across Florida. The homes will be built beside one another and sold in bulk to large-scale investors to manage.
This article was contributed by National Association of Realtors.