Built-for-rent houses are booming in North Carolina suburbs

[hauntedheadnc]

Built-for-rent houses are booming in North Carolina suburbs
Housing's hottest trend reflects generational shifts away from homeownership.
By Brian Gordon, USA Today Network

Completed last summer, Melissa Holland's wide, two-story house west of Charlotte offers an open concept interior, two-car garage, granite countertops, and a fenced backyard. It's ample space for her, a customer service representative, and the rest of the home’s occupants: her mother, her husband, their two kids, and two dogs.

At 46, Holland always assumed she’d own her own home at this point in her life, but this new house, like the vast majority of the new houses in her neighborhood, was only available for rent.

The demand for buying new houses is high, but the demand for renting them is even higher — and neighborhoods across North Carolina are transforming as a result.

Experts say houses built exclusively to be rented are the single hottest sector of the already blistering U.S. housing market, with developers announcing new complexes at an exponential pace across the country, particularly in the south and southwest.

Investment firms are betting big on built-for-rent, pouring tens of billions of dollars into erecting new single-family units — detached houses, townhouses, and cottages — that aren't for sale, securing precious land outside of Sunbelt cities like Phoenix, Tampa, Atlanta, and Charlotte.

And this emerging trend is spreading elsewhere.

Today, the built-to-rent industry is adding close to 100,000 units a year according to Hunter Housing Economics, a real estate consulting firm, which projects the number of these houses built annually to almost double by 2025.

****

The built-to-rent boom can be traced back more than a decade.

In addition to apartments, single-family houses have long been part of the rental landscape. Yet, interest in renting houses shot up following the 2008 financial crisis when many Americans - burned by ill-advised mortgages and foreclosures - grew disillusioned with the once firmly held notion that homeownership was the ultimate goal.

Sensing this shift in preferences, real estate investment trusts (REITs) like American Homes 4 Rent and Tricon Residential started snatched up scores of cheap single-family units. Replacing “mom-and-pop” landlords, the investment firms automated the rental process, using computers to set optimal rents and handled leases and maintenance requests from afar. These rentals were profitable, so the REITs purchased more, which had the effect of lowering the overall housing supply, increasing overall home prices, and driving more people to rent.

According to John Burns Real Estate Consulting, investors in the first three months of this year accounted for a quarter of all home sales.

By the mid-2010s, as the existing housing stock dwindled, more REITs decided to begin building their own houses. Though upfront construction costs are hefty (see: lumber), many investors embraced building new houses for rent - rather than for sale - as an effective long-term strategy.

***

American Homes 4 Rent lists 122 built-to-rent complexes across 12 states. In its latest filing to the federal Security Exchange Commission, American Homes 4 Rent noted the build-to-rent trend “has potential to revolutionize the industry.”

Other tenants who are struggling to buy in the current housing market blame the build-for-rent trend for contributing to their woes. These new rental units don’t eat into the existing housing stock, but neither do they elevate the limited for-sale inventory.

“The available housing market for ownership is going to shrink, and the middle class like myself is going to be stuck in a rental situation," said Toni Goode, a project manager who rents a townhouse outside of Raleigh. For the better part of a year, Goode and her husband have tried to buy in the local area, only to get outbidded time and again by offers exceeding the original asking price by tens of thousands.

"It's taking the American dream of homeownership out of reach," she said.

John Davison, a real estate agent in the Triangle, contends the build-for-rent boom will have deep generational ramifications. “Unfortunately, it is these type of ventures that further withhold affordable inventory from potential owner occupants,” he said. “In other words, the corporate rich get richer and the disparity in socioeconomic classes further grows.”

Source.

[Crawford]

Just when you thought the U.S. couldn't get more dystopian. Now we have build-to-rent sprawl. All the charm and character of crap exurbia, all the stability and community of transient monthly housing.

Why would renters want to deal with all the headaches of homeownership, especially in the SFH sprawl format, which means yards, roofs, furnaces, etc.? Even if a management company is handling things, there are about 100x as many things that could go wrong relative to an apartment in a multifamily building.

[eschaton]

Originally Posted by Crawford

Why would renters want to deal with all the headaches of homeownership, especially in the SFH sprawl format, which means yards, roofs, furnaces, etc.? Even if a management company is handling things, there are about 100x as many things that could go wrong relative to an apartment in a multifamily building.

The biggest market I've seen for rental housing is two groups:

1. Parents with kids who relocate to a new area, but don't think it makes sense to buy immediately.

2. People who want to live in certain school districts, but cannot afford to buy there.

Essentially it's for those who desire the typical suburban life, but lack either access to enough capital or the knowledge of the metro area to make a commitment.

It probably is a niche market, but historically there have been so few rentals available in these areas which aren't townhomes/apartments that those that do exist rented for a pretty penny.

[galleyfox]

https://twitter.com/rickpalaciosjr/s...446614022?s=21

[DCReid]

Originally Posted by eschaton

The biggest market I've seen for rental housing is two groups:

1. Parents with kids who relocate to a new area, but don't think it makes sense to buy immediately.

2. People who want to live in certain school districts, but cannot afford to buy there.

Essentially it's for those who desire the typical suburban life, but lack either access to enough capital or the knowledge of the metro area to make a commitment.

It probably is a niche market, but historically there have been so few rentals available in these areas which aren't townhomes/apartments that those that do exist rented for a pretty penny.

Seems to be happening in many metros. I just read an article that some of the newer sunbelt suburbs are majority built-to-rent ( it was either Phoenix or Dallas). It may not be a niche market anymore as it may seem convenient to younger families or even empty nesters who want a new spacious and private single family house but don't want to spend all of their money up from to buy (or may not have it).

[Crawford]

The pandemic seems to have made American sprawl even shittier. Now the McMansions will be rented by-the-month, the yards will be crap and no one will know their neighbors.

Restaurants are also now dystopian. Most of my family lives in typical U.S. sprawl, and I notice the newest restaurants are drive-thru only, no indoor seating, can't even access the restaurant except via private vehicle. They usually have two drive-thrus, on either side of the structure. Wonder what would happen if someone tried the drive-thru via bike, skateboard or (gasp) walking. The sprawl restaurants without drive-thrus were all shut down during pandemic. All the older sprawl Paneras, Starbucks, etc. were shuttered.

Of course all the malls are dead or dying now that Amazon killed retail, so there's nowhere to congregate. What a nightmare existence. Just exist in your rental McMansion and have everything delivered.

[Obadno]

Originally Posted by Crawford

The pandemic seems to have made American sprawl even shittier. Now the McMansions will be rented by-the-month, the yards will be crap and no one will know their neighbors.

Restaurants are also now dystopian. Most of my family lives in typical U.S. sprawl, and I notice the newest restaurants are drive-thru only, no indoor seating, can't even access the restaurant except via private vehicle. They usually have two drive-thrus, on either side of the structure. Wonder what would happen if someone tried the drive-thru via bike, skateboard or (gasp) walking. The sprawl restaurants without drive-thrus were all shut down during pandemic. All the older sprawl Paneras, Starbucks, etc. were shuttered.

Of course all the malls are dead or dying now that Amazon killed retail, so there's nowhere to congregate. What a nightmare existence.

That's a very regional problem due to over the top lockdowns.

People have been eating in restaurants forever its not going to stop but a large portion of the population is in an irrational hysteria about the relative dangers of Covid

[homebucket]

Originally Posted by Crawford

The pandemic seems to have made American sprawl even shittier. Now the McMansions will be rented by-the-month, the yards will be crap and no one will know their neighbors.

Restaurants are also now dystopian. Most of my family lives in typical U.S. sprawl, and I notice the newest restaurants are drive-thru only, no indoor seating, can't even access the restaurant except via private vehicle. They usually have two drive-thrus, on either side of the structure. Wonder what would happen if someone tried the drive-thru via bike, skateboard or (gasp) walking. The sprawl restaurants without drive-thrus were all shut down during pandemic. All the older sprawl Paneras, Starbucks, etc. were shuttered.

Of course all the malls are dead or dying now that Amazon killed retail, so there's nowhere to congregate. What a nightmare existence. Just exist in your rental McMansion and have everything delivered.

Which suburbs have drive through restaurants? Is it like McDonalds but an actual sit down restaurant? I know some places are doing ghost kitchens.

[Crawford]

Originally Posted by homebucket

Which suburbs have drive through restaurants? Is it like McDonalds but an actual sit down restaurant? I know some places are doing ghost kitchens.

My family is mostly in suburban Detroit. The new restaurants are drive-thru only, no seating, no public access to structure (so obviously no public bathrooms, no take out, etc.)

During the pandemic, pretty much all the suburban sprawl restaurants without drive-thrus shut down. Now a new generation of drive-thru only restaurants has emerged. This is true for traditional fast food, like McDonalds, Taco Bell, etc. and also for the Starbucks, Panera, type places. Even some of the sprawl sit-down chains, like Outback Steakhouse, are building drive-thru models.

I'm not saying that a typical sprawl Taco Bell was some glorious place, but, to me, there's something dystopian about a restaurant you can't access except behind the wheel. One would think there's some demand to sit, at least for long-distance travelers taking a break. And, especially if you have little kids, bathrooms come in handy.

[Yuri]

Originally Posted by Crawford

The pandemic seems to have made American sprawl even shittier. Now the McMansions will be rented by-the-month, the yards will be crap and no one will know their neighbors.

Restaurants are also now dystopian. Most of my family lives in typical U.S. sprawl, and I notice the newest restaurants are drive-thru only, no indoor seating, can't even access the restaurant except via private vehicle. They usually have two drive-thrus, on either side of the structure. Wonder what would happen if someone tried the drive-thru via bike, skateboard or (gasp) walking. The sprawl restaurants without drive-thrus were all shut down during pandemic. All the older sprawl Paneras, Starbucks, etc. were shuttered.

Of course all the malls are dead or dying now that Amazon killed retail, so there's nowhere to congregate. What a nightmare existence. Just exist in your rental McMansion and have everything delivered.

You're describing a prison sentence.

[mrnyc]

meanwhile, in coastal florida my mother and her husband's town has quite proudly fought off the chains and has all mom and pop places.

they are doing well too, but of course its florida, so likely it will make you plague sick to dine around there.

i'm in no hurry to go down.

[sopas ej]

Originally Posted by homebucket

Which suburbs have drive through restaurants?

That's what *I'm* wondering. Where I live, all the restaurants are back in full effect. Some have closed for good, but others have opened to take their place.

I had Oaxacan food recently and it was a 25-minute wait to get seated, but SO WORTH THE WAIT.

[3rd&Brown]

Originally Posted by eschaton

1. Parents with kids who relocate to a new area, but don't think it makes sense to buy immediately.

2. People who want to live in certain school districts, but cannot afford to buy there.

This is interesting. Number 2 piques my interest because most towns in good school districts in the Northeast wouldn't allow anything like an exurban built to rent neighborhood in anything other than an apartment or townhouse format.

It would be a hard no from the beginning for rental SFH.

[ardecila]

Originally Posted by Crawford

My family is mostly in suburban Detroit. The new restaurants are drive-thru only, no seating, no public access to structure (so obviously no public bathrooms, no take out, etc.)

During the pandemic, pretty much all the suburban sprawl restaurants without drive-thrus shut down. Now a new generation of drive-thru only restaurants has emerged. This is true for traditional fast food, like McDonalds, Taco Bell, etc. and also for the Starbucks, Panera, type places. Even some of the sprawl sit-down chains, like Outback Steakhouse, are building drive-thru models.

I'm not saying that a typical sprawl Taco Bell was some glorious place, but, to me, there's something dystopian about a restaurant you can't access except behind the wheel. One would think there's some demand to sit, at least for long-distance travelers taking a break. And, especially if you have little kids, bathrooms come in handy.

This is my line of work, I do design for several fast-casual chains. I will say the preferred store for both of the large chains I work with is one that includes an indoor cafe/dining room. However, we are in possibly the hottest growth period for fast-casual dining in decades. Competition for prime sites is intense.

The drive-thru only stores can be squeezed onto smaller sites, which gives the companies more options to meet their growth targets. A Starbucks that is drive-thru only can snatch up that prime Main&Main corner site that is too small to accommodate a Chik-Fil-A or Panera with a dining room.

So I'm not sure this is the "new normal" so much as the inevitable result of a once-in-a-generation, overheated real estate market, even without considering Covid effects. I also think most of the blame should fall on states and cities for deliberately planning these outcomes. If you build out wide roads far into the cornfields, neglect transit and pedestrian/bike networks, and ban dense infill in established desirable areas, the only possible outcome is more auto-oriented sprawl. When planning a new development in such an environment, whether it is retail, residential, or office, the needs of car access and storage will necessarily outweigh every other design consideration.

[3rd&Brown]

Originally Posted by DCReid

Seems to be happening in many metros. I just read an article that some of the newer sunbelt suburbs are majority built-to-rent ( it was either Phoenix or Dallas). It may not be a niche market anymore as it may seem convenient to younger families or even empty nesters who want a new spacious and private single family house but don't want to spend all of their money up from to buy (or may not have it).

That's a sad statement, quite frankly.

You can buy a new construction SFH from a developer which you will use as your primary residence for as little as 2% down. That so many people don't have that 2% of whatever the "price" whether it be $180K or $250k says alot of the inequality in our society. Granted, that's risky on it's own accord but I have to believe most of the folks inhabiting these homes want the SFH lifestyle but can't afford to buy.

[jmecklenborg]

Originally Posted by Crawford

Even if a management company is handling things, there are about 100x as many things that could go wrong relative to an apartment in a multifamily building.

You just explained why REITs didn't buy many single-family homes until recently, when demographic data + rising building costs meant we'd eventually end up in the situation we're in.

Many of the single-family homes owned by REITs will become owner-occupied again one day. The SFH is the most versatile of all residential property types.

The Wall St. Journal had a great opposition piece yesterday regarding Biden's bill and its intent to increase taxes on real estate. It was a great wake-up call - we need real estate to be profitable in order for people to invest in its construction. People need to know that they can make 2X as much building a rental as opposed to dumping it in the market to ensure that money keeps flowing to construction.

One of the big reasons why we haven't seen enough construction over the past decade was because the stock market was roaring. It was too easy to make a ton of money doing nothing. With real estate, you need to actually get off your ass. The more that it is taxed, the more that people will avoid taking the leap into construction.

[jmecklenborg]

Originally Posted by ardecila

This is my line of work, I do design for several fast-casual chains.

Is any accommodation being made for delivery app pickup? It seems like there is some combination of these people going through drive-thrus OR coming into the restaurant, even if the place has a drive-thru, but I kind of wonder if there is an advantage to a dedicated walk-up thing just for these delivery guys so they can bypass the drive-thru lane.

Yesterday I had a doctor's appointment and saw a bag full of food sitting there next to the main entrance to the hospital. The ticket was stapled to the plastic bag and both were flapping in the wind. It was a sad sight. We went from a nation of baloney sandwich brown-baggers to everybody eating a delivered $14 lunch in pretty short order.

I mean, people are ordering a delivered lunch 20 times a week and can't figure out why they can't afford a house. I took the Dave Ramsey recommendation to heart - don't step in a restaurant unless you're working there part-time. It's literally a $20,000 yearly swing in your finances.