Real Estate News 24

Real Estate News 24

Institutional investors have impact on single-family real estate – BizWest

Beth McCandry

In my column last month, I explained how builders and boomers are addressing the housing shortage in our country.

To summarize it:

After the consequences of the Great Recession, building owners are trying to catch up after years of delayed construction starts. We have had an average of 1.02 million annual restarts per year since 2006, compared to a historical average of 1.5 million annual restarts since 1959. Freddie Mac is now telling us that we are facing a housing shortage of approximately 5 million homes, and that number is from a. supports the latest NAR research study with the Rosen Consulting Group, which concludes that we have built 5.5 million to 6.8 million homes across the country since 2001.

While builders have accelerated the pace of construction over the past year, high material costs and labor shortages make it unlikely that we can rely on construction companies to make up the entire housing shortfall.

In fact, we need baby boomers (born between 1946-1964) to make a bigger contribution to replenishing our housing supply. Boomers own an estimated 40% of the country’s single-family homes, a significant portion of which are investment or rental properties. By encouraging Boomers to dispose of some of these holdings, we can go a long way toward freeing up inventory for potential younger buyers.

But there is one more factor in this supply-and-demand drama that deserves our attention: the institutional investor.

Private investors, often referred to as “mom-and-pop” investors, currently own the majority of the US single-family home portfolio of 17 million homes. In northern Colorado, we are certainly seeing a much higher ratio of mom-and-pop investors to institutional investors. Nationwide, only 2-3% of single-family houses are owned by institutional investors. But as house prices continue to rise across the country and locally, institutional investors see the potential for investment returns in the single-family market.

At the end of May, the median price for an existing single family home across the country was $ 356,600 – up 24.4% year over year. Locally, markets such as Fort Collins, Loveland and Longmont posted similar median gains (see chart). Unsurprisingly, large institutional investors are starting to take notice and compete with existing and potential new homeowners.

We see many established and emerging companies making instant deals below market value, bringing convenience and efficiency to consumers. But consumers may be wondering how these companies can make money from this model. After all, isn’t owning a large real estate portfolio risky?

In fact, these investors see great opportunities in buying at reduced prices. You can hold large pools of rental properties in sought-after markets across the country, or even sell real estate books to emerging single-family rental (SFR) companies. Many developers even develop entire communities with no intention of selling. They are building master-planned communities of detached single-family homes and realizing that a growing affordability gap offers high occupancy opportunities and good long-term foundations for value and rental income growth.

In principle, real estate – and especially single-family houses – are and will remain the strongest asset class. As more and more large institutional investors acquire single family homes, combined with the constraints on development growth imposed by local communities, we see the imbalance between supply and demand increasing. Rather than targeting the demand side of the equation through incentives, policymakers need to target the supply side through capital gains tax incentives for the mom-and-pop investors or other tax breaks to drive real estate sales. Develop smart growth strategies that encourage, but don’t stop, responsible growth.

I would love to hear your thoughts and feedback on solving some of the supply side economic challenges.

Brandon Wells is President of The Group Inc. Real Estate, founded in Fort Collins in 1976 with six locations in Northern Colorado. He can be reached at [email protected] or 970-430-6463.

In my column last month, I explained how builders and boomers are addressing the housing shortage in our country.

To summarize it:

After the consequences of the Great Recession, building owners are trying to catch up after years of delayed construction starts. We have had an average of 1.02 million annual restarts per year since 2006, compared to a historical average of 1.5 million annual restarts since 1959. Freddie Mac is now telling us that we are facing a housing shortage of approximately 5 million homes, and that number is from a. supports the latest NAR research study with the Rosen Consulting Group, which concludes that we have built 5.5 million to 6.8 million homes across the country since 2001.

While builders have accelerated the pace of construction over the past year, high material costs and labor shortages make it unlikely that we can rely on construction companies to make up the entire housing shortfall.

In fact, we need baby boomers (born between 1946-1964) to make a bigger contribution to replenishing our housing supply. Boomers own an estimated 40% of the country’s single-family homes, a significant portion of which are investment or rental properties. By incentivizing Boomers to dispose of some of these holdings, we can go a long way in releasing inventory to potential younger buyers.

But there is one more factor in this supply-and-demand drama that deserves our attention: the institutional investor.

Private investors, often referred to as “mom-and-pop” investors, currently own the majority of the US single-family home portfolio of 17 million homes. In Northern Colorado we have …

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