Yahoo Finance Renter Nation: Big landlords bet on rising rents
Welcome to the renter nation. With home loans still relatively difficult to obtain post financial crash regulations, and housing supply still tight, many are having to rent instead of buying a home. And this has created another type of opportunity – for landlords.
Earlier today Starwood Waypoint (SWAY) and Colony American Homes, two big owners of single-family rental homes, announced they were merging. Together the two landlords own more than 31,000 homes valued at nearly $8 billion.
As Yahoo Finance’s Mike Santoli explains, this deal was a culmination of a trend on Wall Street that began several years ago. “This was a really big bet among a lot of investment firms REITs (Real Estate Investment Trusts) as well as some private equity firms, after the housing bust, to go in and buy up a tremendous number of single family homes out of foreclosure or other distressed conditions, and it really was kind of untamed territory in a sense nobody had ever done this,” Santoli says. “People said ‘how could you have tens of thousands of single family homes, how are going to manage these as rental properties,’ well they're doing it and it seems like it's now become another industry, another arm of the housing market.”
Wall Street getting into the home rental game is implicitly a bet that the home ownership rate - which has been in steep decline since the financial crisis - will not rebound very quickly. Thus far, Wall Street has been right. “We are becoming a renter nation,” Santoli observes.
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New data shows that as rents have risen, this has placed many in this country into a renter’s crisis. Harvard’s Joint Center on Housing Studies reports the number of U.S. households that spend at least half their income on rent, the so-called ‘severely cost-burdened,’ could increase a whopping 25% to 14.8 million over the next 10 years. The report finds that an improving economy won’t be enough to offset rental cost, and recommends the need to expand affordable housing.
Santoli points out the demographics would suggest that new housing construction should have really ramped up to meet demand, but that has not happened to the extent needed yet. For landlords like Starwood Waypoint, making money in this market with limited supply hasn’t been a problem thus far, but it could be when it comes to growth and how the companies will expand their footprint.
“A regular REIT basically goes out and raises money in the stock market, usually, or the debt market, and it mostly buys existing properties - office buildings and things like that - so that model does exist,” he says. “But doing it for single family homes seems very difficult, its very thorny and messy, it’s not as efficient as going out and buying a big office property.”
“It's very unclear as to whether [home rental operators] can grow very far,” Santoli says.
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