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High home prices and persistently steep mortgage interest rates have put home ownership out of reach for many Americans. Wall Street has taken advantage of this and financed large swaths of luxury single-family homes in the suburbs with everything an owner could want except a large down payment, mortgage and a deed in their name.
For generations, the norm in American towns and cities was that the best suburban communities, with the best schools, where affluent homeowners dominated, did not have many, if any, rental properties. That’s changing now, as millennials with decent jobs have lost their homeownership in the neighborhoods where they want to live. Real estate investment trusts like AvalonBay Communities have caught up, building large, master-planned rental communities that mimic suburban urban neighborhoods.
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According to the Wall Street Journal, AvalonBay purchased 126 new construction homes in Bee Cave, Texas, for $49 million. The company plans to invest more than $1 billion in the build-to-rent sector.
“We think we’re really in the early stages of what could be a pretty important, almost new asset class,” Matt Birenbaum, AvalonBay’s chief investment officer, told the Wall Street Journal.
AvalonBay is part of a growing group of investors, including Blackstone, Invitation Homes and Pretium Partners, who have realized that renting during a housing crisis is a much more affordable option for many potential younger homeowners. The data supports them:
See also: During market downturns, investors learn that, unlike stocks, this is the case High-yield real estate bonds paying 7.5% to 9% are protected by resilient assets, which buffer against losses.
For the first time in more than two decades, growth in the U.S. renter base has outpaced that of homeowners over the past four quarters, according to a Redfin analysis of U.S. census data. Additionally, the National Association of Realtors’ analysis of U.S. Census Bureau data shows that between 2021 and 2023, the share of new home construction doubled to 10% of total single-family homes. In the third quarter of 2024, the number of new renter households has increased three times as fast as the number of homeowners.
