Orange County Partnership - News

Supply Not Meeting Rising Demand for Burgeoning Build-to-Rent Single-Family Home Market

Residential Realtors are telling the Orange County Partnership that the sales market is very busy since restrictions were lifted on the in-person showing of homes on June 9. While agents marvel over the housing demand in Orange County, an impediment to the market, in addition to the pandemic, has been the lack of available for-sale inventory both in terms of new and existing housing stock.


An emerging sector of the residential market is the “Build-to-Rent Single-Family Home” market. Real estate advisory firm RCLCO reports that approximately 6% of new single-family homes are purpose-built for-rent. The firm estimates this sector will produce approximately 700,000 new units over the next 10 years. Given current demographic trends RCLCO forecasts much greater demand than the current pace of production, which could result in a significant supply shortfall, which therefore suggests the build-to-rent single-family home sector presents a strong market opportunity in the coming decade for developers and investors.


This emerging product includes single-story detached apartment style units or horizontal apartments, small lot single-family homes, and duplexes and row homes, according to an article penned by RCLCO Managing Directors Gregg Logan and Todd LaRue.


They note that following the Great Recession, the share of single-family rental homes enjoyed significant growth as a result of excesses in the for-sale market with several million additional households becoming single-family renters and moving into the large vacant stock of newly foreclosed single-family homes.


“Many of those vacant units were purchased by private-equity groups and other investors, helping to stabilize the housing market. Institutional investors had entered a market previously dominated by small mom and pop investors and found it to be an attractive and growing market. Once the supply of excess housing inventory had largely been absorbed, industry participants began looking at other options, including continuing to buy resale homes, and more recently focusing on building new units for rent,” Logan and LaRue stated.


The 2018 American Community Survey reported there were 12 million detached one-unit rentals in the U.S., which represented 27% of total occupied rental housing in the U.S.


Among some of the top institutional investors in the build-to-rent single-family home market include Tricon Residential (formerly Tricon Capital Group) which two years ago established a joint venture with two global institutional investors to acquire an additional 10,000 to 12,000 single-family rental homes. RCLCO notes that recently Tricon has moved into the build-to-rent space by purchasing moderately-sized single-family lots, often located within master-planned communities, and partnering with area builders to deliver rental homes, typically custom designed as a rental product. Another institutional player is American Homes 4 Rent, which has also moved into the build-to-rent space in recent years, purchasing lots from developers and partnering with builders for the vertical construction of properties.


Toronto-based Tricon Residential reported on Aug. 5, it had acquired 68 single-family rental homes during the quarter ended June 30, representing the closing on homes that were under contract prior to the onset of the COVID-19 pandemic, bringing its total managed portfolio to 21,622 homes. The company temporarily paused its acquisition program as a result of the pandemic and expects to resume acquisitions in the third quarter of 2020, subject to market conditions.


On Aug. 17, American Homes 4 Rent introduced Cactus Glenn in Glendale, AZ, to its roster of newly built single-family rental home communities. Cactus Glenn is AH4R's 53rd new rental home community and its second in the Phoenix market. As of June 30, 2020, the firm owned 53,000 single-family properties in selected submarkets in 22 states.


RCLCO cites favorable demographics, specifically the anticipated growth in population in the next 10 years of people in their 30s and 40s including Millennials. It also notes that many Millennials are already living in the suburbs and now with the COVID pandemic expected to drive even more Millennials out of urban center, the demand for new housing and specifically rental single-family housing should grow in coming years.


“Given the anticipated undersupply of single-family rentals for the foreseeable future, this segment represents a strong opportunity for investors, builders and developers to create new rental home communities in a variety of formats, serving a growing market,” RCLCO concludes.


While not broken out into the rental single-family home sector, there has been some recent welcome news in terms of new home construction. The National Association of Home Builders reported on Aug. 17 that total housing production was up 22.6% in July to a seasonally adjusted annual rate of 1.50 million units, according to a report from the U.S. Housing and Urban Development and Commerce Department. The July totals was the highest production rate since February (prior to the outbreak of COVID-19).


Single-family starts increased 8.2% to a 940,000 seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, increased 58.4% to a 556,000 pace.


“Strong builder confidence and heavy buyer traffic point to further production gains in the near term, but the more than 110% jump in lumber prices since mid-April is adding approximately $14,000 to the cost of each new single-family home,” said NAHB Chairman Chuck Fowke.


For the full “Growing Demand for Build-to-Rent Single Family Homes” article, go to: