Strong demand for starter homes turning big investors into developers

Amid a nationwide shortage of existing low-cost homes, rental companies are getting into the homebuilding game

National /
Jan.January 03, 2019 03:30 PM

(Credit: iStock)

As developers nationwide struggle to meet the demand for starter homes, some institutional investors are putting on their hardhats and entering the homebuilding market.

Companies such as American Homes 4 Rent and Tricon American Homes — which bought properties at distressed prices after the financial crisis to rent out — are now looking to build entry-level homes, according to the Wall Street Journal. By developing the properties themselves, the companies can maintain that business model — which has included renting out to families and people with low credit and high debt — and avoid running out of inventory.

Overall, home sales across the U.S. are slowing down, inventory is rising and listing prices on existing homes are falling. But in the lower-priced, entry-level home market, demand remains strong especially among millennials, according to experts.

Homebuilders are also being challenged by higher supply costs and a labor shortage that is preventing them from building homes quickly enough.

In total, institutional investors have acquired more than 300,000 single-family homes since the crisis, according to the Journal.

Now, like other potential homebuyers, these rental home companies are struggling to find houses at affordable prices due to rising property values.

American Homes 4 Rent, based in Agoura Hills, California, has been constructing new homes throughout the Southeast. That’s in addition to its 52,000 rental homes across the country. Tricon American, a subsidiary of Toronto-based Tricon Capital Group, began including new homes in its portfolio last year, and has plans for hundreds more.

By building houses rather than acquiring existing ones, American Homes said it can control costs, avoiding sales commissions and renovations. [WSJ] — Keith Larsen


Related Articles

arrow_forward_ios
Ben Schachter, Sean Black and Mike Pappas (Signature, Getty, Keyes)

Knock expands home lending program into South Florida 

Knock expands home lending program into South Florida 
Oprah Winfrey and (inset) Lawrence Stroll over the unit (Getty)

You get a condo! Billionaire Lawrence Stroll sells Oprah’s former Fisher Island penthouse

You get a condo! Billionaire Lawrence Stroll sells Oprah’s former Fisher Island penthouse
Photo courtesy of David Iglesias

Boca Beach House condo project scores $43M construction loan

Boca Beach House condo project scores $43M construction loan
Lennar's Stuart Miller and 28600 Southwest 132nd Avenue (Google Maps)

Lennar spends $29M on Homestead mobile home park, plans new community

Lennar spends $29M on Homestead mobile home park, plans new community
Nick Rojo and Jeff Burns (Affiliated, iStock)

Affiliated Development launches $125M workforce housing fund

Affiliated Development launches $125M workforce housing fund
Boca Raton Municipal Golf Course with GL Homes' Misha Ezratti, head of GL Homes and Boca Raton Mayor Scott Singer (Google Maps, Lila Photo via GL Homes, Twitter)

Slow play: GL Homes’ purchase of Boca Raton golf course pushed to 2021

Slow play: GL Homes’ purchase of Boca Raton golf course pushed to 2021
Brent Baker and a  rendering of 5024 South State Road 7 (DiVosta, iStock)

Pulte buys 31 acres in Lake Worth, plans housing community

Pulte buys 31 acres in Lake Worth, plans housing community
Tom Cabrerizo and 6790-6880 Southwest 80th Street (Google Maps)

Developers score $15M construction loan for Miami townhouse development

Developers score $15M construction loan for Miami townhouse development
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...