Investor

Investors’ purchases of single-family homes contribute to the rise in rental listings in the spring

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After Hurricane Harvey flooded her Champion Forest home in 2017, Dominique Tillis and her husband decided to sell it in April 2020 with plans to build a new home on Louetta Road. Within two hours, their home was off the market.

However, after supply chain shortages began at the start of the pandemic, Tillis said construction stalled and prices soared, forcing the family of four to abandon their original plan and to move into a two bedroom apartment. The family then redirected its business from buying to renting.

Like Tillis, a housing shortage is pushing many people to rent in the Greater Houston Area, according to the Houston Realtors Association. Large investment firms are converting single-family homes to rentals and building rental communities in Spring and Klein to help meet growing rental demand. However, for Tillis and many others, the supply is still not enough.

“It’s been so disheartening,” she said. “The prices are so high, and the criteria are ridiculous. Things like this are what cause people who get paid to become homeless.

HAR reported on June 15 that year-over-year rentals increased 24.8% from May 2021 to May 2022. While rising mortgages and low inventory are contributing to the trend, Experts said potential buyers also face competition from real estate investment companies or institutions. buyers, buying properties for sale or renting out as own rentals.

“Buyers today must make tough decisions about not buying and staying in rentals due to rising median home prices, higher interest rates, higher taxes and [inflation]– all of this requires more rental options to be on the ground,” said Paula Wehring, a real estate agent with the Paula Wehring Group.

Institutional investors

Nadia Evangelou, director of forecasting at the National Association of Realtorsdescribed the companies targeting the properties as “Wall Street-level” buyers looking for an investment.

“They are not mom and pop shoppers. They are looking to buy large-scale properties and communities and profit from them,” Evangelou said.

Texas leads the nation in institutional buying with 28% of single-family homes purchased by businesses, more than double the national average of 13%. The state also saw the second-largest percentage increase in properties purchased by institutional buyers from 2020 to 2021, up 4.6%.

David Howard, Executive Director of the National Rental House Council, said the term “institutional investors” is a catch-all for companies large and small, as well as individuals. According to Howard, of the 23 million single-family homes for rent in the United States, 300,000 are owned by large corporations, or about 1.3%.

Locally, NAR data showed that 38% of single-family properties purchased in Harris County in 2021 were purchased by institutional buyers. Property data of the Harris County Assessment District shows that nearly 1,300 homes in the nine ZIP codes that make up the Spring and Klein area are owned by five institutional buyers and their affiliates: American Homes 4 Rental, Residential Progress, FirstKey Homes, Invitation houses and Residential Tricon.

In the 77373 zip code, 479 homes are owned by these top five institutional investors, the most of any zip code in the region. Meanwhile, data shows FirstKey Homes has the strongest footprint with 339 homes held across the region’s nine ZIP codes.

Additionally, while the majority of Spring-area households were owner-occupied in 2020, ZIP Codes 77070 and 77090 had a majority of renter-occupied dwellings, according to American Community Survey five-year estimates.

Evangelou said the trend is forcing lower-income first-time buyers to face stiffer competition for home purchases, as companies tend to target the same properties they would buy.

“If you are [selling] at an entry-level price, you’ll get 20-30 offers, and cash is king because they don’t require an evaluation; they waive inspections; and it is an easier closure. So that’s when investors can just roll over a newly married couple,” said Jenny Hill, real estate agent at Coldwell Banker Realty.

Build to rent

Companies have also developed entire build-to-let communities. Howard said two years ago, 3% of NRHC companies were building houses for rent, up from 26% in 2022.

“People know there is a supply crisis when it comes to buying a home. But I think people are less aware that there’s an equally serious supply crisis in the rental housing market,” Howard said.

HAR data showed new single-family rental listings increased 28.6% from May 2021 to May 2022.

A 2022 study by researchers from the University of California at Berkeley found that American Homes 4 Rent and Canadian company Tricon Residential had invested millions of dollars in the fourth quarter of 2021 in the development of homes for rent.

Locally, CDC Houston has begun site preparation for Phase 1 of the new 400-acre City Place residential project with DMB development in May, which officials say will include single-family rental options. “Given the strong rental demand in the Houston area, we have decided to incorporate single-family rental into the first phase of our residential project,” said CDC Houston Project Manager Andrew Giammalva. “We want to give [transient] employees the opportunity to live in a house without having to buy a house.

Just north of Spring in Tomball, Tricon Residential and HHS Residential opened in December on Willow Creek Manors, a new single-family rental community set to open 14 units on FM 2920 later this year.

Invitation Homes and American Homes 4 Rent did not respond to a request for comment, and FirstKey Homes returned Community Impact Journal to the NRHC for comments.

Long term impacts

Institutional buying trends have emerged as the housing industry grapples with record levels of inventory. In May, the HAR reported that the Houston-area market had 1.6 months of supply – the highest mark since October 2021, but below the six-month mark that the NAR considers a market “ balance”.

Jennifer Wauhob, chair of the HAR board of directors, said in a June 15 press release that conditions “appear to be calming down.”

“New listings rose 9% in May, helping to lift inventories to their highest level of the year, so hopefully we can start to see signs of normality in terms of supply, demand and prices in the coming months,” Wauhob said.

Charlie Kriegel, who partners with businesses for the Houston-based company Winhill Kirby Advisors, said that while investment firms are turning to building communities for rent, institutional home purchases “would never go away.” NAR data showed that between 2015 and 2020, national market shares fell from 15.4% to 11.8% before recovering to 13.1% in 2021.

“Build-to-let is the fastest growing segment of real estate in America — it’s not going anywhere,” he said.

Kriegel said national trends could see at least 40% of single-family homes owned by businesses, which would change home buying dynamics.

“There is no negotiation with an institutional buyer,” he said. “Anyone buying for less than $400,000 will need to understand that.”