Rental-Home Companies Are Building Houses to Meet Demand
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With your Money Briefing, I'm Charlie Turner in New York for The Wall Street Journal. Institutional landlords, those companies that scooped up foreclosed homes during the housing crisis, are now buying and building houses to meet demand for rental homes. More in a moment. First, some money headlines. Apple's revenue warning was the main reason stocks fell Thursday, but not the only reason. Another factor in the stocks line was a gloomy manufacturer's survey. The Institute for Supply Management reported that its index of factory activity fell to 54.1 in December from November's 59.3, well below the 57.9 economists had expected and the biggest fall in a decade. But the Wall Street Journal's herd on the street says the survey may have been affected in part by the holidays.
Also, 54.1 is still well above the level of 50. That marks the dividing line between manufacturing expansion and contraction.
What is driving institutional landlords to buy and build single-family rental homes?
Plus, like most survey-based measures, the ISM index doesn't merely reflect the reality on the ground, but also the mood of respondents. US multinational companies that rely heavily on sales in Chinese markets are likely to face headwinds in the months ahead amid slower growth and rising trade tensions. That's according to Kevin Hassett, chairman of the White House Council of Economic Advisors. But Mr. Hassett said the White House expected the US economy to grow 3% this year. Most professional forecasters see the economy slowing this year. Fed officials projected 2.3 percent growth when they met two weeks ago. Shares of major airlines fell sharply Thursday. This after Delta Airlines said fare revenue didn't climb as much as expected during the holiday travel season.
It fanned concerns that major carriers will struggle to maintain profits as lower fuel prices lead customers to expect cheaper flights. Still ahead, Wall Street landlords are now building houses to rent. The housing industry has been held back by a shortage of new homes, in particular a lack of entry-level houses. That's made it tough not just for millennial first-time buyers, but also Wall Street's big landlords, institutional landlords like American Homes for Rent and Tricon American Homes. These companies are responding to the housing shortage by building their own houses and renting them out to Americans who are too strapped to buy. Here to explain this is Wall Street Journal reporter Ryan DeZember.
So, Ryan, these institutional landlords buy or build homes for a rental market that's pretty much exploded, hasn't it?
Yeah, yeah. Since the financial crisis, the number of U.S. households that rent their homes has really exploded, while the number of those who occupy or who are owner-occupants has risen a little bit, but it's been fairly stagnant by comparison.
Yeah.
And this build-to-rent strategy is aimed at potential renters in the suburbs, people who are a bit too strapped to buy a house.
Yeah, yeah. A lot of people – these companies came out of the crash, and the idea was to buy foreclosed homes for dirt cheap, rent them, fix them up, rent them out, let the price rise, charge rents. And it turns out the rental business has been so good, they got enough scale that they could build companies to manage these sort of far-flung assets. And now they're trying to buy more, and they've realized – You know, maybe there's not enough bargains out here to keep going, but we can just build houses to rent. So it shows sort of a shift in strategy where they're not trying as much to get that home, that appreciation on the value of the home. They're trying to get a nice house that they can get somebody who wants to live in a nice neighborhood, who's willing to pay for a new house and pay like a premium rent.
And they're trying to capture that.
They're in it for the rental income. Exactly. Can you explain the advantages exactly of building to rent over buying?
Well, there was an annual conference among single-family rental investors in Phoenix recently, and it was a big topic. And some of the things that they said is that they get a higher rent for their new homes than they do for even totally gut-renovated older homes.
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