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    Builders Plan to Build More Detached Homes for Single-Family Rentals [August 6, 2015]

     


    By Brian Honea


     


    More detached homes will be built for single-family rental to meet increasing demand for rental housing, according to a report from John Burns, CEO of John Burns Real Estate Consulting released Tuesday.


    For many years, resale homes have filled the demand for rental housing while builders ignored a significant share of the nation's households – 12.7 million out of 120 million, or nearly 10 percent – that rented a single-family detached home, according to Burns.


    "The 12.7 million detached home renters have largely been ignored by builders and developers for years as both supply and demand steadily grew over many decades," Burns wrote. "The vast majority of the growth of individually owned rental homes has historically come from households who lived in the home before relocating and decided to continue owning and renting the home rather than selling it."


    That number of 12.7 million detached homes currently in the single-family rental market comprise about 29 percent of the demand for rentals nationwide (out of 44.3 million), according to Burns.


    Burns' report notes that the single-family rental market has been "historically a mom and pop business," noting RentRange reported that about 54 percent of landlords who own single-family rental homes own only one home.


    The research from Burns, confirmed with CEOs from several institutional investors, found that renters generally live in detached homes because that is the lifestyle they preferred and that most of them did not even consider renting an apartment. Burns found that the three top reasons people lived in a detached home and rented were: Necessity, because they could not qualify for a mortgage; flexibility, because renting allowed them the flexibility to more easily move if they wanted to; and choice, because they would rather spend their money than save for a downpayment on a mortgage.


    The competition of single-family rental homes with the detached resale and new home market has created a need for new homes to be built for single-family rentals, according to Burns.


    "Clearly, there is a subset of renters who will pay a premium to rent new, as evidenced by the 200K+ apartment units that are built and leased every year," Burns said. "If it works for apartment developers, why has there not been much attempt to build single-family homes for rent? Those days are now ending."


    Burns cited several builders, including American Rental Properties, Starwood Waypoint, Lennar, and Rancho Sahuarita, who have expressed plans to build more single-family detached homes either to sell to investors or manage themselves.


    "Last year, approximately 25,000 detached homes were built for rent," Burns wrote. "We believe that number will increase significantly over the next several years. We expect detached homes for rent to become an important segmentation opportunity for the top masterplans in the country, who will no longer ignore 10 percent of housing demand."


    The increased popularity of single-family rentals has prompted industry leader The Five Star Institute to host its first-ever Single-Family Rental Summit in Las Vegas, October 11 through 13. Five Star's summit will provide an education and networking event for private equity, REIT, Institutional/bank, and small/mid-sized investors.


    Editor's note: The Five Star Institute is the parent company of DS News and DSNews.com.