Will new development open up SFR supply?

SFR Funds are turning over every rock to find deals in this new market condition. One factor working against the industry is a suppressed supply of new homes. 95% of homeowners have a home mortgage at or below 5%. With interest rates much higher now, homeowners are disincentivized to sell and buy new as their purchasing power would be significantly less. This condition means that homeowners will sit in their homes until either home prices or interest rates drop substantially. Since interest rates are not predicted to drop any time soon and the suppressed supply is effectively propping up home prices, the industry is in a stalemate and waiting game.

Since demand from SFR Funds is still high, can new development be the answer to unplugging the supply block?

There are 3 types of new development:

1. Build for Rent (BFR) – in this model, an SFR Fund specializes in building new units to rent. The SFR will hold these properties so this will not be a source of new deals.
2. Community Developers for Residential Buyers – in this model, a developer builds a whole community of houses with the intent to sell the units to homeowners. Mostly, the developer would not want to sell any units to investors as renters can pull overall home prices down which negatively affects the developer’s bottom line.
3. Community Developers for Residential and Investor Buyers – Some Community Developers do section off 10-20% of the units for SFR investors and its important to have local connections to these developers to turn these opportunities into deals.

The short of it is, most new development will not lead to more supply and deals for the majority of SFR Funds. However, there are deals to be done. SFR Funds should have a local connection to find those developers willing to sell some of their units to an investor.

If you are an SFR Fund that wants more opportunistic deals, reach out to us about our hyper-local agents trained in institutional buying.