Houses No One Will Ever Own

They're beautiful, brand new homes. And you can't own one.

You pass a new neighborhood being built. The manicured lawns, quiet cul-de-sacs and lovely community pool catches your eye. It’s perfect. It’s everything you’ve been looking for. You call your agent (whose name is “Casey Roman”) and ask her for details.

“It is exactly what you’ve been looking for but unfortunately, you can’t buy there,” she tells you.

In fact, no one can. That neighborhood doesn’t have a single homeowner in it and likely never will. Each of those houses are owned by a corporation. They were built for one reason and one reason only: to rent out by that corporation.

It has always been true that investors could purchase single family homes and turn them into rentals. What’s new and emerging, is the rise of the institutional investor, building and/or buying entire communities to use strictly as rentals.

This is not a big-city phenomenon. It’s an Everywhere, America phenomenon. In the Riverlights development in Wilmington, the Newland community is the first build-for-rent in our area. Two hundred and seventy-nine homes with plenty of perks (12ft ceilings, quartz counters, 24/7 maintenance). Capstone, the partner investor, develops student housing communities. They’ve parlayed that model into build-for-rent. Is it profitable? Oh hell yes. A 20-30% rental rate premium compared to typical apartments.

Is it legal? In North Carolina, yes. Under NC law a local government can’t regulate ownership structure of developments. While these engineered neighborhoods have the same impact on traffic, schools, utilities and the environment as a traditional neighborhood, they raise other concerns. Do they increase housing costs by restricting supply? Do landlord suburbs change the very nature of traditional neighborhoods with more transient residents?

It's unlikely that built-to-rent communities will take over, due mostly to land shortages throughout the country. Local governments and nearby homeowners are another barrier, often pushing back on the basis of property value impact. Built-to-rent only makes up about 5% of the total home building market but that number is increasing consistently.

Landlord neighborhoods are easy to criticize but there’s an upside that shouldn’t be discounted. The rental market has endured extreme pressure over the past few years as American adopt a “work from anywhere” philosophy - packing up and hitting the road despite a thin number of options on the MLS. Many first-time or cash-strapped homebuyers now find themselves priced out of homeownership entirely due to interest rates and affordability. Some are waiting for their home to be built and need a temporary roof over their head that gives more stability than an AirBnB. Others are relocating to the area and wanting to “try out” a zipcode before committing.



This is a story about build-to-own neighborhoods but it’s a larger story about what homeownership will mean for our kids and our kids, kids. For my parents, the smartest investment they could make was saving up for their kid's college education. Today, it may be buying your kid square footage. Used first for income as a rental and later for your child’s first home or their first investment property. That may be the only way to get ahead of inflation and competition from institutional owners.