New single family housing being bought up by firms to be rentals

[KILZ FILLZ]

Canada : 

(Didn’t vet source)

 

https://www.theglobeandmail.com/business/article-condo-developer-to-buy-1-billion-worth-of-single-family-houses-in/
 

Condo developer plans to buy $1-billion worth of single-family houses in Canada for rentals

 

RACHELLE YOUNGLAI

INCLUDES CLARIFICATION

PUBLISHED JUNE 13, 2021 UPDATED 14 HOURS AGO

 

A Toronto condo developer is buying hundreds of detached houses in Ontario, with the plan of renting them and profiting on the housing crisis ripping across the country.

 

Core Development Group Ltd. is building a large-scale single-family home rental operation, an unproven business model in Canada, where the market is fragmented and individual investors lease a small number of their own properties for income.

 

Institutional house rentals have become highly lucrative in the United States, with private-equity firms, pension funds and big companies throwing billions of dollars into the asset class. In Canada, deep-pocketed investors, as well as real estate investment trusts, have already acquired hundreds of apartment buildings to tap into the strong rental demand but have not moved into rental houses.

 

Core founder Corey Hawtin and executive vice-president Faran Latafat questioned why there wasn’t a similar business in Canada, which has had a rental vacancy rate below 3 per cent since the turn of the century.

 

“We were trying to answer the question: Why is nobody doing this in Canada? We could not come up with an objective answer to that. In Canada, it works as well or better than the U.S.,” said Ms. Latafat, Core’s president of single-family development.

 

Core’s main business is condo development, and it has 14 projects in the Toronto region. Last fall, Mr. Hawtin raised $250-million from investors to buy approximately 400 properties, add basement apartments and turn the houses into two rental units.

 

Core is targeting eight midsized cities in Ontario, and this year started buying properties in Kingston, St. Catharines, London, Barrie, Hamilton, Peterborough and Cambridge. It will soon start buying in Guelph. Its medium-term goal is to have a $1-billion portfolio of 4,000 rental units in Ontario, Quebec, B.C. and Atlantic Canada by 2026.

 

Mr. Hawtin said Core’s rental units will provide affordable housing for families and residents who do not want to live in small apartments. If Core succeeds, it could spur major investors to follow suit.

 

Ms. Latafat and Mr. Hawtin believe a major house rental business will flourish in Canada because of decades of low rental vacancy rates, desire for more space and high immigration. They also point out most of the country’s population is concentrated around a few job centres.

 

As well, the pandemic’s real estate boom has priced even more residents out of the housing market with rentals as the only option. National home prices are 20 per cent above prepandemic levels, with values 30 to 50 per cent higher in parts of Ontario, B.C., Quebec and the Maritimes. The typical price of a detached house in Guelph and nearby Kitchener-Waterloo is now more than $800,000, according to the Canadian Real Estate Association. That is about $200,000 more than a year ago.

 

Economist David Rosenberg said an affordable rental house could become more attractive to a potential home buyer because house prices are so high.

 

“The ratio of home prices to rental rates is so extreme that new entrants to residential real estate will gravitate to the rental market,” said Mr. Rosenberg, who leads Rosenberg Research & Associates, adding that if more potential buyers are forced to rent, that could eventually reduce competition in the residential real estate market and slow home price increases.

 

Ms. Latafat said Core chose the eight Ontario cities because they all have strong local economies, are close to larger job centres, have growing populations and low housing vacancy rates.

 

In Barrie and Guelph, the rental vacancy rate is closer to 2 per cent, according to Canada Mortgage and Housing Corp. data. Meanwhile, in the first year of the pandemic, rental rates have increased in the high single digits in Barrie, Guelph, London and St. Catharines, according to CMHC.

 

“They have tight vacancies, like zero vacancies,” said Mr. Hawtin. “Immigration is growing, population is growing and buying a house or a condo has become less and less attainable. That is really compounding the rental demand in all of our marketplaces,” he said.

 

So far this year, Core has spent $50-million on 75 properties, the executives said. Their two-bedroom basement apartments go for about $1,600 a month and a three-bedroom above-ground unit at about $2,100 a month. Those prices are higher than the average rental rate of $1,407 for a two-bedroom apartment in Ontario, according to CMHC data. Though Core’s rentals are newly renovated units in houses with gardens.

 

Institutionalized family home rentals got their start south of the border, after the U.S. housing bubble burst in 2007 and companies bought thousands of houses at fire-sale prices.

Companies and their investors now own swaths of U.S. neighbourhoods and make money on the rent, similar to apartment building owners.

 

Toronto-based Tricon Residential, one of the largest operators of single family home rentals in the U.S., said Core’s decision to split the properties into two rental units makes sense given the price of houses in Canada.

 

“The problem in Canada is that homes are so expensive,” said Tricon chief executive officer Gary Berman, whose company has wanted to bring single family home rentals to Canada for years but has concluded that it is unworkable owing to the high real estate prices.

 

Tricon owns about 24,000 detached houses in 18 major U.S. cities. Most are in warmer climates such as Orlando and Phoenix. Mr. Berman said that makes the houses easier to maintain compared to Canadian properties, which have to withstand long, harsh winters.

 

Tricon keeps its purchase prices below US$350,000 a house and rents the entire property for about US$1,500 a month. Mr. Berman said the key to the business is scale, saying Tricon aims to have at least 500 rental houses in each city.

 

Core is also trying to build scale and is buying houses within 15 minutes of each other to form a cluster of about 50 properties or 100 rental units in each city. Ms. Latafat said it has taken Core about one month to rent their new units and their vacancy rate is below 2 per cent. She declined to comment on when the rental business would be profitable except to say that the rental units were “cash flow positive,” about five months after they were purchased.

 

Mr. Hawtin said he expects to start fundraising for the next stage of the rental business as soon as next year and may consider going public at some point.

Edited June 14, 2021 by KILZ FILLZ
Title change.

[KILZ FILLZ]

USA:

 

https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801

 

If You Sell a House These Days, the Buyer Might Be a Pension Fund

 

Yield-chasing investors are snapping up single-family homes, competing with ordinary Americans and driving up prices 

By 

Ryan Dezember

 | Photographs by Jeff Lautenberger for The Wall Street JournalApril 4, 2021 10:00 am ET

 

A bidding war broke out this winter at a new subdivision north of Houston. But the prize this time was the entire subdivision, not just a single suburban house, illustrating the rise of big investors as a potent new force in the U.S. housing market.

 

D.R. Horton Inc. DHI -1.06% built 124 houses in Conroe, Texas, rented them out and then put the whole community, Amber Pines at Fosters Ridge, on the block. A Who’s Who of investors and home-rental firms flocked to the December sale. The winning $32 million bid came from an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

 

The country’s most prolific home builder booked roughly twice what it typically makes selling houses to the middle class—an encouraging debut in the business of selling entire neighborhoods to investors.

 

“We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin,” the builder’s finance chief, Bill Wheat, said at a recent investor conference.

 

From individuals with smartphones and a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans, who are armed with the cheapest mortgage financing ever, and driving up home prices.

 

“You now have permanent capital competing with a young couple trying to buy a house,” said John Burns, whose eponymous real estate consulting firm estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in. “That’s going to make U.S. housing permanently more expensive,” he said.

 

The consulting firm found Houston to be a favorite haunt of investors who have lately accounted for 24% of home purchases there. Investors’ slice of the housing market grows—as it does in other boomtowns, such as Miami, Phoenix and Las Vegas—among properties priced below $300,000 and in decent school districts.

 

“Limited housing supply, low rates, a global reach for yield, and what we’re calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble,” the firm concluded.

 

The bubble has room to grow before it bursts, according to John Burns Real Estate Consulting. But it is inflating fast. The firm expects home prices to climb 12% this year—on top of last year’s 11% rise—and increase at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005.

 

That boom was different, fueled by loose lending that enabled individuals to speculate on home prices by racking up mortgages they could repay only if home prices kept climbing. The money party ended a few years later when home prices stopped rising. The ensuing crash wiped out $11 trillion in U.S. household wealth and brought the global financial system to the brink of collapse.

 

Financiers stepped in starting in 2011 and gobbled up foreclosed homes at steep discounts. They dispatched buyers to courthouse auctions with duffel bags of cash. Smartphones and tablet computers—new then—enabled them to orchestrate the land grab and manage tens of thousands of far-flung properties thereafter.

 

They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for falling prices. There wasn’t much competition. Stung by losses, banks made it harder for regular home buyers to get a mortgage. Millions of Americans were underwater, owing more on their mortgages than their homes were worth, and unable to move.

 

Home-rental firms, including Invitation HomesInc. INVH -0.24% and American Homes 4 Rent, AMH -0.36% thrived. Renting suburban homes proved so profitable that landlords hit the open market and added properties at full price once foreclosures dried up. Many now build houses explicitly to rent.

 

The coronavirus pandemic sparked a race for home-office space and yards. Occupancy rates reached records and rents are rising with home prices. The ecosystem of companies that service, finance and mimic the mega landlords is booming.

 

Burns counted more than 200 companies and investment firms in the house hunt: computer-assisted flipper Opendoor Technologies Inc.,OPEN 2.09% money managers including J.P. Morgan Asset Management and BlackRock Inc.,BLK -0.63% platforms such as Fundrise and Roofstock that buy and arrange for the management of rentals on behalf of individualsand builder LGI Homes Inc., LGIH -2.27%which now reports wholesale home sales to bulk buyers in its quarterly results.

 

Spring brought a fresh stampede of buyers.

PCCP LLC, which typically invests in apartment buildings and office towers, said it bought rental-home communities in the Southeast, the start of a $1 billion pact with Calstrs, California’s $286.9 billion teachers’ retirement system.

 

Home builder Lennar Corp. LEN.B -1.32%announced a rental venture with investment firms including Centerbridge Partners LP and Allianz SE to which it and potentially other builders will supply more than $4 billion of houses.

 

Madison Realty Capital moved into rentals with clients that used to focus on developing apartment buildings and owner-occupied subdivisions. On Thursday, it closed a $110 million loan on a project in Los Angeles, where 220 of the nearly 700 home sites are being sold to investors. The original plans, derailed by the housing crash, didn’t envision any rentals.

 

“A lot of things that would have been for-sale housing are going to be for-rent housing,” said Josh Zegen, Madison’s managing principal.

 

Bruce McNeilage began building houses to rent out around Nashville, Tenn., in 2005. After the housing crash, his Kinloch Partners expanded into other Southeastern markets, flipping occupied rentals to bigger investors.

 

Kinloch was financed mostly by community banks in the cities where it rehabbed foreclosures and built rentals. These days Kinloch can borrow far more from Walker & Dunlop Inc., WD 1.32% a commercial real estate lender forging into suburban rentals. Mr. McNeilage’s problem is that others are bidding up houses and lots.

 

“I am boxed out,” he said. “There’s too many people chasing things and they’re willing to overpay. It’s silly money right now.”

[KILZ FILLZ]

Peasant class being built right before our eyes. 

[Kults]

It’s a huge issue up here. Been happening in VAN for the last 2 decades but it’s spilled over. Foreign money/investors snatch up all the real estate and just sit on it, lot of it stays vacant and inflates housing prices cause the demand exceeds the supply mainly because what’s there isn’t actually being used as housing but rather laissez faire investments. Proposed tax on vacant units could help but I don’t see it making much of a dent.

 

Rundown shacks here are now going for close to 1M 

 

 

 

[KILZ FILLZ]

Somewhat similar here, but with luxury apartments. @Kults
 

Ask: 

why would someone rent a $3-4000/mo apartment when a mortgage can be third of that?

 

Foreign nationals who would rather hide their wealth by not going through the mortgage process. So now, instead of common apartments being built every where, there are these “luxury” apartments that normal folk could never afford. Makes the most sense for developers to continue down the path because greater ROI.  Drives up the market for the rest of us. 

[Kults]

4 minutes ago, KILZ FILLZ said:

Somewhat similar here, but with luxury apartments.
 

Ask: 

why would someone rent a $3-4000/mo apartment when a mortgage can be third of that?

 

Foreign nationals who would rather hide their wealth by not going through the mortgage process. So now, instead of common apartments being built every where, there are these “luxury” apartments that normal folk could never afford. Makes the most sense for developers to continue down the path because greater ROI.  

 

 

Simply cause most cant afford the down payment (paying that much in rent might be a reason why)

 

Instead of living below their means and building up savings most millennials choose to live the high life, only its rented indefinitely

[metronome]

https://www.wsj.com/articles/built-to-rent-suburbs-are-poised-to-spread-across-the-u-s-11623075610?mod=e2tw

 

Story about how suburb neighbourhoods are now being developed as rental communities.

 

We have something in Canada called CMHC as well, which really fucks first time (and even second/third/etc) homebuyers.  We also have something called a stress test which is a way to insure for lenders that an increase in interest rates is able to be absorbed by the lendee.

Edited June 14, 2021 by metronome

[Kults]

How it started VS How it’s going 

 

 

 

[abrasivesaint]

Dealing with the ramifications of this shit in New England currently. I won’t be here long, fuck this noise.

[Schnitzel]

Not much of an issue here because tax structures make it very easy for wealthy boomers etc. to purchase places and offset any losses from their tax.

 

But it's coming no doubt.

 

 

 

 

[KILZ FILLZ]

5 hours ago, Kults said:

 

 

Simply cause most cant afford the down payment (paying that much in rent might be a reason why)

 

Instead of living below their means and building up savings most millennials choose to live the high life, only its rented indefinitely

I’m sure that’s a percentage of them, but the majority are driving rovers, CLs, and maseratis… it’s bizarre to see. And the explanation that was given to me is that they don’t need to expose their financials to rent, but they would to buy. (Friend was dating someone living in one of these complexes) 

[mr.yuck]

I’ll never understand why this is happening. If people want to rent single family houses as opposed to apartments, it would be more cost effective for these investment firms to build a new construction community of rental homes than it would buy current inventory with potential issues that need to be repaired.

[KILZ FILLZ]

The hits keep coming

 

 

 

https://www.bloomberg.com/opinion/articles/2021-06-17/america-should-become-a-nation-of-renters

[metronome]

^^

"You will own less, and be happier" 

 

 

 

On 6/15/2021 at 9:35 PM, mr.yuck said:

I’ll never understand why this is happening. If people want to rent single family houses as opposed to apartments, it would be more cost effective for these investment firms to build a new construction community of rental homes than it would buy current inventory with potential issues that need to be repaired.

 

The WSJ article I posted above addresses that.  Rental suburb communities are going up to that purpose.

Edited June 20, 2021 by metronome

[mr.yuck]

4 hours ago, metronome said:

 

 

The WSJ article I posted above addresses that.  Rental suburb communities are going up to that purpose.

Damn I didn’t even catch that link the first time around. Can you copy and paste the article here? I think I’m being paywalled.

 

[metronome]

I gotchu @mr.yuck

 

Article:

 

For some residents, the gated community in the Arizona desert is their first go at suburban living. The 222 houses have tile roofs, garages and white-fenced backyards where residents host barbecues and their dogs play. But these aren’t forever homes, or even starters: They are one- and two-bedroom rentals, with rents starting at $1,420 a month.

Subdivisions such as Christopher Todd Communities on Happy Valley, located about 30 miles outside of downtown Phoenix, were built for renters from the start. Owner and developer Todd Wood, a former organic food mogul, started his real-estate company almost five years ago to seize on what he saw as an increasing demand for rental housing. Mr. Wood has now developed more than 2,000 rental houses around greater Phoenix.

 

Investors have been buying up single-family houses to rent out for some time, typically in disparate bunches in communities where most people own their homes. Tenants may have absentee landlords. Built-to-rent developments, however, are entirely new subdivisions designed for renters. They are managed more like new apartment buildings, with designated staff for repairs and maintenance. In the past few years, the model has taken off around Phoenix and elsewhere—and is likely to become a dominant force in the rental housing market in the coming years, with implications for the communities that surround them, and the nature of home ownership.

 

Today, built-to-rent homes make up just over 6% of new homes built in the U.S. every year, according to Hunter Housing Economics, a real estate consulting firm, which projects the number of these homes built annually will double by 2024. The country’s largest home builders are planning for that future. Backed by banks and private investment firms, they have already bet billions on the sector, and will put down some $40 billion more during the next 18 months, Brad Hunter, founder of Hunter Housing Economics, projects. Built-to-rent subdivisions have been constructed or are under development in nearly 30 states. Taylor Morrison Home Corp. , Mr. Wood’s development partner and the nation’s fifth-largest builder, has said built-to-rent could soon become 50% of its total business. The company didn’t disclose the current share.

Homeownership is expected to decline over the next two decades—a trend that started with the generation after the baby boomers, according to the Urban Institute, a Washington, D.C., think tank that advocates for homeownership. Prices are rising faster than ever, leaving more people, including those with higher incomes, more likely to rent.

 

Built-to-rent subdivisions are attractive to some urban apartment renters who want to move to the suburbs but are unable or uninterested in buying a home. Many young professionals and families are less keen than their parents in being tied down by a 30-year mortgage, according to real-estate analysts, builders and tenants. They want the flexibility of renting and the freedom that comes with being able to pick up and leave after a lease. As they age, they may want the yard, garage, good schools and roomy basement, without the headaches of mowing that yard or buying a new motor when the garage door breaks.

 

These economic forces and generational preferences are creating a new kind of housing: the landlord suburb. Monthly mortgage payments that would be a resident’s equity are now income for real-estate companies. Thousands of homes that might ordinarily be controlled by homeowners—landscaped, renovated or otherwise customized (within the rules set by a homeowners’ association)—are instead professionally managed by real-estate companies, which typically handle everything from repairs and landscaping to drawing the line on what neighbors can put on their lawns. “I am the president of your HOA,” as Nashville developer and landlord Bruce McNeilage puts it. Mr. McNeilage’s Kinloch Partners includes built-to-rent houses in the Nashville and Atlanta areas.

What becomes of the suburbs if, one day, homeowners are outnumbered by renters? For one, the suburbs may become more transient places where residents move in and out more often, industry experts say. Tenants of single-family homes typically stay around longer than apartment renters, but tend to move sooner than homeowners, who stay for an average of seven years. “They’re not going to plant an oak tree,” says real estate consultant John Burns, referring to built-to-rent tenants.

 

Some think a transition to rent won’t mean an end to building wealth through suburban property ownership. Christopher Ptomey, executive director of the Terwilliger Center for Housing at the Urban Land Institute, sees potential in fractional ownership models, such as neighborhood real-estate investment trusts. In these structures, people would own stock in companies that hold commercial and residential properties in their area. “We need to be thinking more about different ways that people can still own the communities that they live in, outside of the primary residence model,” Mr. Ptomey says.

New forms of ownership and investment could also give more renters a greater stake in local government and politics, something they often lack now. That could affect everything from land use to school boards.

“In some cases, you’ll talk to local officials and they’ll say ‘I don’t really listen to the renters. They’re not here that long. They’re not invested in the community,’” says Katherine Levine Einstein, a Boston University professor of political science who has studied renter political representation.

“We didn’t want to get into homeownership,” says Joe Paul, a 29-year-old nutrition and lifestyle coach. He and his wife, Allie, who works in fitness retail, relocated to a Christopher Todd community in Goodyear, Ariz., this past year. Mr. Paul says it was wanderlust and a love of the mountains that drew the couple and their dog from the Milwaukee suburbs. For now, the couple’s financial goals are focused on paying down existing debt. “We still want to travel and don’t want to have to maintain a house,” Mr. Paul says.

 

The look-and-feel of rent-only subdivisions vary from their HOA-governed neighbors. There are no for-sale signs. And there are no for-rent signs, either, because would-be renters go through an in-person or online leasing office. Some, like Mr. Paul’s neighborhood, are built to look more like garden apartment complexes, resulting in compact and uniform layouts. Others mix up facades and color palettes to give neighborhoods a less cookie-cutter feel. On the interiors, builders opt for more durable materials, meant to last for the duration of their long-term investment. That can sometimes mean higher-end finishes, such as granite countertops. It can also mean less traditional options, like vinyl floors.

Residents in some of these subdivisions are more likely to have dogs than children, which means doggy doors and poop-friendly artificial turf are common, says Mr. Hunter, the economist. Christopher Todd, for example, runs a one-minute advertisement on YouTube that is narrated by a dog named Calli. “Storage for my toys!” she exclaims. By contrast, the addition of child-friendly amenities like aboveground pools or playground equipment may be restricted by rental leases at many developments.

Despite the rapid growth of built-to-rent houses so far, there are headwinds. One is a shortage of suitable land, which is affecting housing development across the board.

 

Another barrier is opposition from local governments and from homeowners, who have a tendency to view rental properties, even if indistinguishable from their own homes, as bad for residential property values, builders say. The town of Stockbridge, Ga., an Atlanta suburb, temporarily banned the construction of new rental properties while it seeks to change zoning laws that would permanently stifle built-to-rent projects. But these impasses have done little to slow down the sector’s overall growth.

“There’s a portion of America that wants to rent a new house. Let it happen,” Mr. Burns says.

For many tenants in built-to-rent neighborhoods, a home that they own is still their vision for the future. Software architect Matt Marooney, 42, rents a five-bedroom house from Mr. McNeilage’s company in Jefferson, Ga., for $2,400 a month. He lives there with his wife, Ellie, 36, and their five sons, ages 1 to 17. He owned a home during a previous marriage and says renting has helped him get back on better financial footing.

Owning a home again is still Mr. Marooney’s dream. Somewhere with a bigger yard, maybe some land with room for his sons to ride four-wheelers and shoot guns. “We have these conversations almost weekly,” he says. “You know, ‘What kind of house would you want to be in?’ We’ve talked about this house here. If this house had a basement and had an extra room, we probably would think about buying this place.”