Homebuilders Increasingly Selling In Bulk To Investors Over Homebuyers
The housing market is tight, and single-family buyers have more competition than ever.
Investors in single-family houses are increasingly making forays into buying directly from homebuilders, according to a report by John Burns Real Estate Consulting and the National Rental Home Council, a landlord trade group.
One-off resale properties accounted for 57% of acquisitions by investors in the single-family rental space during the fourth quarter of 2021, about the same as during the same quarter in 2020 but significantly down from 81% in Q3 2019, according to the report.
Investors are turning to portfolio sales more than in the past: 26% of portfolio growth came from new homes purchased directly from single-family builders or those built specifically to be rented, up from 11% in Q4 2020 and only 3% in Q3 2019, according to the report.
For homebuilders, selling in bulk to investors allows a quicker profit on their product, since investors typically have more capital on hand and the ability to close on a large number of homes at once, The Wall Street Journal reports.
The pressure to sell to investors might become even more intense as interest rates rise, edging some individual buyers out of the market. Those buyers might have had difficulty finding a property to buy in any case, considering the nationwide shortage of for-sale houses. Yet they often still want the space and amenities a single-family house offers, so they turn to renting houses.
“Those potential buyers still want more space,” National Association of Home Builders Chief Economist Robert Dietz told the WSJ. “And so single-family rental is likely to continue to show some strength.”
Investors are also pouring billions into building communities of single-family homes themselves or partnering with homebuilders to meet the needs of those same renters getting priced out of homeownership. Build-to-rent projects have about $85B committed to them, or enough to build 315,000 houses, Alan Ratner, an analyst at housing research firm Zelman & Associates, told Bloomberg.
The move by investors into rental housing is causing some pushback, even within the real estate industry. Alex Kamkar, managing shareholder with master-planned developer Bold Fox Development, argued at Bisnow's recent Houston Master-Planned Communities & Homebuilding event that Americans are now being put in the position of renting the American dream.
Policymakers have taken note as well. In January, Sen. Elizabeth Warren, a Democrat from Massachusetts, sent open letters to three major single-family home investors, castigating them for recent rent hikes, evictions and plans to buy more properties. The letters also asked for data on the houses that investors have bought, rent and fee levels, and the investors' revenue and profits for the last five years.
In their responses, the firms told Warren that institutional investors play a relatively small role in the housing market and that they serve a rent-by-choice population. At hearings in February, Warren rebutted these claims.