Newly enacted federal housing legislation that prohibits institutional investors from purchasing single-family rental homes has triggered a wave of property listings from the sector's largest operators. The number of homes owned by institutional investors now listed for sale has more than doubled since the start of February, according to exclusive analysis from real estate data provider Parcl Labs.
Listings have surged from 4,166 on February 1, when Parcl launched its full research, to 9,447 homes as of this month. The properties carry a combined asking price of $3.1 billion. Jason Lewris, co-founder of Parcl Labs, noted that while these numbers will take months to materialize into actual dispositions given the length of sales cycles, the figures provide the fastest read into institutional behavior.
The legislation defines institutional investors as those owning 350 or more homes, a threshold that surprised the industry, which traditionally set that bar at 1,000 homes. While the law does not force investors to sell properties they currently own, it bars them from buying additional homes unless they fall under certain exceptions, including build-to-rent developments.
The cohort of investors with 350 or more homes now own roughly 589,000 properties, representing 3.9% of the 14 million single-family rental homes in the United States, according to Parcl. These investors account for roughly 40% of the net selling year to date. The charge by lawmakers was that these investors, most of whom were able to buy homes with all cash, were inflating prices and sidelining regular owner-occupant buyers. The call for a ban was bipartisan.
The largest landlords in the sector are all net sellers year to date. Progress Residential, Invitation Homes, AMH, Tricon, FirstKey, Amherst and VineBrook have collectively sold 3,180 more homes than they purchased since January 1. To put that in perspective, they still own about 400,000 homes, so the activity does not represent a liquidation sale. One exception stands out: VineBrook currently has nearly 10% of its portfolio on the market, roughly 1,900 homes with a total asking price of $285 million.
Invitation Homes and AMH, the two publicly traded single-family rental REITs, have 549 and 536 homes for sale, respectively. The largest landlord, Progress Residential, has the least of the larger players, with just 143 properties for sale. Stephen Scherr, co-president of Pretium, the parent company of Progress Residential, said in an interview last week on CNBC's Squawk on the Street that "there is broad recognition now both by the White House and lawmakers, in an overwhelming majority, that private capital has a very big role to play for a component of the American population that wants to rent a home."
Progress is now focusing on areas that the new legislation allows and which the industry fought hard for during the legislative process. Scherr explained that the company can buy build-to-rent properties, which represent a predominant component of new housing. The firm can also buy under various other exceptions including rent-to-renovate, where it improves the housing stock, or under a homeownership boost, where it gives people an opportunity to transition from renters to owners.
The build-to-rent segment has been gaining significant momentum over the past few years as demand for single-family rental housing grows. AMH started early, in 2017, building its own homes. It has developed more than 14,000 homes for rent in 180 communities, according to the company. Invitation Homes purchased an Atlanta-based homebuilder, ResiBuilt, at the beginning of this year.
Chris Nebenzahl, vice president of rental research at John Burns Research and Consulting, wrote in a report that the financing case has materially changed with the forced disposition mandate removed. Lenders can underwrite build-to-rent again, and the industry is starting to see this happen. Meanwhile, investors who are selling are offering discounts on the properties. Nationally, 38.7% of all listings for sale today have had price cuts compared with 54% within the institutional single-family rental segment.