Todays WSJ: "But institutional investors want a bigger slice of the action. They own 55% of all U.S. apartment units but see family homes as a more attractive bet. Rent growth is stronger for single-family homes than for apartments, and tenants tend to stick around for longer. On average, renters in single-family homes stay in their properties over four years, compared with two to three for apartment dwellers.
But the strategy that powerful investors such as Blackstone used to amass tens of thousands of family homes since the 2008 financial crisis is running out of steam. Picking off individual houses dotted around the country is time consuming, expensive and inefficient. "The scattered sites model has run its course. It worked when lots of houses were in foreclosure but it's not the future of the industry," says Brad Case, chief economist for Middleburg Communities.
It is harder for Wall Street players to get their hands on new houses in bulk these days. When the market is weak, home builders sometimes opt to unload finished houses to institutional investors at a roughly 10% discount if they need to wrap up a development. But this isn't happening now. There is so little housing inventory available to buy that newly constructed homes are being snapped up immediately by regular buyers.
Wall Street's solution is to build new neighborhoods of family homes where everybody rents. The model isn't new: Clustered housing for students and senior citizens has been around for decades. The number of "build to rent" communities is small, with 900 neighborhoods nationwide, each with an average of 135 to 150 homes according to a report by the Urban Institute. But the concept is growing fast. The National Association of Home Builders estimates roughly 10% of new housing construction is destined for build-to-rent.
It is efficient for big investors to pool all of their rental homes in one place rather than have them scattered all over a city. Fixing broken appliances is cheaper when the handyman doesn't have to drive miles across town between properties.
And landlords are discovering new ways to keep a lid on costs when they can design whole neighborhoods from the ground up. A family home built by institutional investors will usually have a wide hallway and stairs to protect the paintwork from knocks when several tenants haul furniture in and out. The homes are sturdily built, with flooring that will last for years.
Investors that can build new housing themselves will find it easier to grow their portfolios profitably in the coming years. New York-listed real-estate investment trust American Homes 4 Rent is constructing over 2,000 new family homes. Invitation Homes opted for partnerships with housebuilders, however these arrangements are more expensive as the builder must get a cut. Both stocks, which specialize in family homes, should continue to outperform struggling apartment REITs like Equity Residential.
Regular house hunters won't be sorry to hear that fewer deep-pocketed investors may be bidding for America's scarce family homes in the future. And any new stock that landlords build is welcome -- depending on whom you ask, America is short anywhere from 2 million to 4 million homes. The only downside might be a lack of charm in these new neighborhoods."
AI
