Here’s how much demand there is for single-family houses in Charlotte: A company has decided that building new houses as permanent rentals is a profitable strategy thanks to for-sale inventory remaining at historic lows.
It’s unclear how big the build-to-rent market will grow in Charlotte, as companies are still trying to figure out if it’s a viable business model. But while it’s a tiny slice of the market for new houses right now, build-to-rent projects could put even more pressure on the already tight market facing first-time homebuyers, the segment of buyers facing the biggest inventory shortfalls.
Invitation Homes, which specializes in single-family rentals, is planning to build 79 houses in a new subdivision called Evans Woods, off Harrisburg Road in east Charlotte. The four-bedroom houses, about 2,000 square feet each, will then be rented to tenants instead of sold to buyers.
Such all-rental subdivisions have popped up in recent years in Arizona and California, and companies such as Invitation Homes have bought a small percentage of new Charlotte subdivisions for rentals. But Evans Woods appears to be the first exclusively rental subdivision built from the ground up in Charlotte, said Judson Stringfellow, a developer who did initial work on the Evans Woods site before selling it to another firm.
Over the past few years, companies such as American Homes 4 Rent, Invitation Homes and Tricon have built up big portfolios of single-family houses across the U.S., including more than 10,000 in the Charlotte region. They remain a small piece of the overall housing market: In Mecklenburg County, where there are about 255,000 single-family houses, the major rental firms own about 2.5 percent of the total, property records show.
But they’re growing, and backed by Wall Street and big private equity firms, they’ve started to upend a fragmented market that’s long been dominated by local mom-and-pop landlords.
Up until now, such companies have mostly acquired their properties through foreclosures and sales of single-family houses from owners, focused on acquiring entry-level houses. As that market gets ever tighter, with little new development in that price range, some of the companies have decided to start building their own houses.
Building new single-family houses just to rent them out might seem like a strange idea when there’s so little supply for sale. But with the average sale price for a home in Charlotte jumping almost 40 percent in five years (it hit $281,567 in December), and far fewer cheap foreclosures available to buy, it starts to make more sense.
And demand for rentals remains high: Since the recession, the proportion of renter households in Mecklenburg County has risen from about 39 percent to almost 44 percent, according to census data.
Meanwhile, the amount of new housing being built remains relatively low. Housing starts in the Charlotte region are expected to increase about 7 percent, to 12,950 in 2018, according to building industry analysis firm Metrostudy. That’s up significantly from the dark days of 2008 to 2010, when new housing starts hovered around 5,000, but it’s still barely half of the pre-recession peak of almost 25,000.
The inventory shortage in Charlotte is “going to get worse,” said Jason Gentry, a real estate broker with Sotheby’s and president of the Charlotte Regional Realtor Association. “We're seeing less new listings hitting the market and our absorption rate is not slowing down.”
There’s about 2.2 months worth of supply on the market in Mecklenburg County, far below the four to six months that’s generally considered a balanced market.
Gentry said new single-family rental houses could provide a bridge for people who want to move out of apartments but either can’t afford a down payment or aren’t ready to commit to a house long-term.
Invitation Homes didn’t provide details on how much their new houses will rent for at Evans Woods. The company owns about 3,100 houses in Charlotte, according to its latest financial filings, with an average monthly rent of $1,395.
Jennifer Gooch, Metrostudy’s regional director for Charlotte, said she expects the local build-to-rent market will expand.
“I think it's going to continue to grow,” Gooch said. “We have an undersupply situation affecting affordability for millennials. Renting might be the only option they have.”