Instead of buying bargain basements, real estate investment trusts and private equity funds institutional investors are now buying properties with the purpose to build it as rentals.
Could this be the answer to the problem Millennials and Gen Z families are looking for as they search for a home to occupy?
The number of single-family homes built to rent increased over the past four quarters from 33,000 to 37,000 homes. Last year saw the largest number of built-to-rent houses completed in 14 years.
In the first quarter of this year, built-to-rent homes accounted for 4.3 percent of all single-family starts. The new homes helped to raise the institutional investor market share to 37 percent of all single-family rentals, a new high, according to Attom Data Solutions.
Though built-to-rent homes make up a tiny percentage of new home construction, some observers believe this is just the beginning of a trend.
After a long hiatus, institutional investors are seeking to increase their stake in rentals to take advantage of demand, and bargain-priced properties are rare. New homes require less maintenance than existing homes; they can command rents that are 5 percent to 8 percent higher; and they’re more likely to attract top quality tenants.
In turn, some homebuilders have become landlords, building and managing their own rentals. Plus, it’s the better alternative for many ever since the boom of the build-to-rent trend.
According to CoreLogic, single-family rents climbed steadily between 2010 and 2018, but rent growth slowed to 2.8 percent in February. Vacancy rates are falling to cyclical lows as millennial households priced out of ownership are finding single-family rentals to be a welcome alternative.
For thousands of young families, single-family rentals have become a stepping stone to homeownership, an attractive alternative to apartment living while the family saves for a down payment and waits for affordability to improve. As time passes and the inventory drought continues to inflate prices and reduce supplies of affordable starter homes, more and more Millennial and Gen Z families will remain single-family renters for years to come.
Writer: Shaura Cuyan Shaura Cuyan writes about all the hottest Real Estate trends and predictions for Summit VA Solutions. She has previously written for a number of freelancing gigs and writes her own blog on lifestyle and current issues. She is a Graduate of Bachelor of Arts in Communication, taking up her Masters majoring in Development Communication.