Large landlords are launching into construction as the demand for single-family rentals increases

Jake and Stephanie Murphy are moving into a new single-family rental home built by American Homes 4 Rent.

Diana Olick | CNBC real estate correspondent

With the surge in demand for single-family homes for rent, large landlords are launching into the housing sector to support the decline in supplies.

The push comes as more and more Americans have the flexibility to work from anywhere and are looking for larger spaces with outdoor areas.

“This market is heavily under-supplied. There aren’t enough quality homes for the number of American families,” said David Singelyn, CEO of American Homes 4 Rent, which has built more than 100 rental-only communities in the past five years.

According to the National Association of Home Builders, 13,000 new single-family homes were launched in the first quarter of this year, up 63% from a year ago. According to the association, homes built for rent still represent only 5% of the residential construction market, but it is up from the historical average of 2.7%.

In Mooresville, North Carolina, approximately 30 miles north of Charlotte, the new American Homes 4 Rent development includes more than 220 rental homes with access to amenities including a swimming pool and fitness centers. The fee includes greenery and maintenance.

Jake and Stephanie Murphy, who were able to work remotely from the pandemic, are among those who moved into the community after selling their California home. They could afford to buy, but they decided to rent a four-bedroom home for their family for $ 2,400 a month.

“We’re just not sure if house prices are going to stay where they currently are. So we didn’t want to buy at the peak and then drop them in a couple of years,” said Stephanie Murphy, 29.

The Murphys also said they appreciate the flexibility of the rent as they learn about a new area.

The number of rents is now decreasing slightly, as some smallholders sell their homes on top of this expensive market. But Singelyn plans to continue building rental homes over the next few years based on the growing demand she said she saw.

“How many inquiries are we getting? How many screenings? How many inquiries are we getting about each available home? It’s two to three times more today than it was two years ago before the pandemic,” Singelyn said.

Other companies investing in the rental construction market include Lennar, DR Horton, Taylor Morrison, and Toll Brothers. Invitation Homes, the largest publicly traded property owner, last year entered into a joint venture with home builder Pulte Homes to build more rental homes.

Investments in single-family rentals, both for the purchase of older homes and for the construction of new ones, have grown significantly. The industry saw approximately $ 3 billion in investments in 2020, according to John Burns Real Estate Consulting. In 2021, the figure jumped to $ 30 billion. It is expected to hit $ 50 billion this year as larger institutional investors, home builders and property owners rush into the market.

Like most large landlords, American Homes 4 Rent went into business during the Great Recession when millions of homes were foreclosed. The company bought cheap, distressed properties, often at auction, and turned them into lucrative rentals.

There were 11.6 million single-family rented households in 2006, at the last peak in housing. That figure rose to 15.5 million in 2014 after the housing market crashed, according to John Burns Real Estate Consulting.

But growing demand and tight supply also mean that rental homes are becoming less affordable. Nationwide, single-family rents have increased more than 13% from a year ago, according to CoreLogic.

“The shortage of single-family properties available for rent has plagued the market, pushing rents to record highs,” said Molly Boesel, principal economist at CoreLogic. She noted that the number of single-family rental properties listed earlier this year was well below pre-pandemic levels.

Back in Mooresville, North Carolina, the Murphys are watching how the market evolves. But Jake Murphy said he doesn’t believe home ownership is part of the American dream and is enjoying the rent for now.

“I’m excited because you look around the neighborhood, there’s like Texas and New York license plates, and then we’ve got California,” he said.

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