An expected 700,000 single-family units designed for the rental market are expected to be built nationwide over the next 10 years, but that's still not enough to keep up with the growing demand, according to a study conducted by RCLCO Real Estate Advisors.
This growing niche of single-family rental units are a hybrid between traditional apartment units and single-family homes, built as single-story, detached homes complete with their own small backyards. These rental communities also usually have amenities, such as a pool, dog park, and clubhouse.
"Given demographic trends, RCLCO forecasts much greater demand than the current pace of production, which could result in a significant supply shortfall, suggesting the sector presents a strong market opportunity in the coming decade," according to the report.
Phoenix is ground zero for this unique product that is catching on not only among renters, but other builders who want to grab a piece of this action and investors with voracious appetites for these investments.
Phoenix-based NexMetro Communities has nearly 5,000 homes in 32 projects either completed, under construction or in preconstruction in Phoenix, Dallas, Denver and Tampa, Florida, with another 1,500 units in predevelopment in those markets.
Despite the coronavirus pandemic, leasing at NexMetro's Avilla projects has been strong, while construction has continued and lending and debt markets have come back, said Josh Hartmann, CEO of NexMetro.
Industry experts believe a drop in home ownership rates will fuel a significant increase in demand for rental housing, Hartmann said.
With home ownership declining to 62.1% — the lowest rate in more than 20 years — Hartmann expects demand for rental housing to continue to increase.
"Simply, there's a lot of runway in single family rental," Hartmann said. "This is a reflection of consumer demand — more and more people are seeking a new home lifestyle and are tired of the typical big box rental options."
Another key player in this market is Mesa-based Christopher Todd Communities, which has nearly 2,500 homes completed, under construction or in the pipeline. Of that, 1,451 are in communities that are fully leased where leasing is underway. More than 1,000 homes are in the pipeline.
CEO Todd Wood said the leasing velocity at every Christopher Todd Communities rental community has been phenomenal.
"We have a winning combination of single-family smart homes and a resort lifestyle developed in gated communities, which sets us apart from others in the industry," Wood said.
Even traditional homebuilders are taking notice of the success of these rental communities.
Last year, Scottsdale-based Taylor Morrison Home Corp. (NYSE: TMHC) teamed up with Christopher Todd Communities to build several of these communities nationwide.
Plans call for buying land in the Dallas-Fort Worth area of Texas; Charlotte, North Carolina; and Orlando, Florida in 2021, Wood said.
Darin Rowe, president of Taylor Morrison's build-to-rent division, said he's excited about early development efforts in Phoenix and land pipeline growth in additional markets where Taylor Morrison currently operates.
"The proven brand partnership of Taylor Morrison and Christopher Todd Communities will afford us a competitive advantage as we scale up in this growing homebuilding segment," Rowe said.
By Angela Gonzales – Senior Reporter, Phoenix Business Journal