New Homes Built for Renters

November 15, 2013

More single-family homes across the nation are being built for renters, a shift that mirrors a steady decline in homeownership in the years since the housing bust, says the Wall Street Journal.

Until recently, real estate investors had focused primarily on scooping up tens of thousands of foreclosed homes, at a sharp discount, and converting them into rental properties. Now that the pool of these properties has declined and prices have risen, these investors are snapping up newly finished single-family homes to be used as rentals, or even developing vacant lots from the ground up.

  • Last year 5.8 percent of the 535,000 single-family homes started were being built as rentals, up from 4.8 percent in 2011 and the highest share since at least 1974, according to an analysis of census data by the National Association of Homebuilders.
  • From 1974 to the home-price peak in 2006, only about 2 percent of single-family homes were built for rentals.

Building new rental homes undercuts part of the thesis of investing in single-family rental homes. Investors were attracted to this market largely because they could buy houses for less than the "replacement cost" or how much it would cost to build a new home.

But investors say they can still make profits. They point out that new homes typically come with builder warranties and cost less to maintain, at least in the initial years of ownership.

Source: Conor Dougherty, "New Homes Get Built With Renters in Mind," Wall Street Journal, November 3, 2013.

 

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