By Liam Dillon | Los Angeles Times
LA QUINTA, Calif. — Chelsey and Spencer Marks’ home in Cathedral City was becoming more trouble than it was worth.
The young couple had just spent $15,000 repairing their air conditioning system, essential in the resort town where summer temperatures average more than 100 degrees. Soon, they feared, their three-bedroom house would need new windows and a replacement pump to clean the pool. And even after three years in their home, they had not gotten used to the desert winds howling at all hours outside their doors.
“I was like, I can’t do this anymore,” said Chelsey, 41. “One day I came home and I was like, ‘We’re selling the house.’”
But rather than find another property to buy, the Markses decided to abandon homeownership. They’ve joined the growing numbers of people across the country who’ve chosen to rent a new single-family home in a subdivision designed only for tenants.
In January, the Markses became two of the first residents of SolTerra, a 131-home community in La Quinta, 15 miles from their former property. They sacrificed their home equity and a low mortgage interest rate in exchange for wiping out their credit card debt, pumping up their savings and paying for a trip to Italy this fall.
Plus, now on the rare occasion something in their three-bedroom rental breaks, a maintenance person comes to fix it.
“Come over here and look at this place,” said Chelsea, pointing at her open-concept kitchen filled with stainless steel appliances. “I don’t need to own it to be living that life that I want to live.”
As high home prices persist and mortgages hover at rates twice what they were three years ago, a new twist on the American dream is emerging at unprecedented speed.
Across the country, developers are building new subdivisions with single-family homes only for rent. The projects provide the private backyards and garages that generations of Americans have seen as a marker of middle-class status, but without the ownership that’s traditionally driven middle-class wealth.
Nationwide, roughly 90,000 single-family homes that started construction last year — 10% of the total — are rentals, according to research by the National Assn. of Realtors. That percentage doubled in two years, and it’s the highest share and number of new rental homes since the U.S. Census Bureau began tracking the statistic in the mid-1970s.
Tenants in these new communities, known as build for rent, say they’re overjoyed to have big new houses at costs they can afford, even as many continue to aspire to buy someday. But the increasing share of single-family home rental communities, particularly those developed by large Wall Street firms, is feeding fears among federal and state lawmakers that corporate owners will outcompete potential home buyers and drive prices further out of reach for many Americans.
Deonte Palm, a 30-year-old who works as a roofing contractor, said the new four-bedroom home he’s renting in Menifee is a happy landing spot while his family waits out high mortgage rates.
Before moving this spring, Palm was in an apartment with his fiancee and a newborn where, he said, “we were feeling the walls closing in on us.”
Palm linked up with his brother, who had been living separately with his girlfriend and 2-year-old son, to rent the home for $3,400 a month. His housing costs less than before.
“More space and saving money,” Palm said.
Built for rent began in the aftermath of the housing-bubble-driven Great Recession in 2008. Corporate investors started buying up single-family homes in established neighborhoods and renting them out, a trend that’s continued to grow since then.
Demand for more spacious housing increased as the large millennial generation began having children, and investors decided to take their experience with single-family homes up a notch, said Doug Ressler, manager of business intelligence at commercial real estate firm Yardi Matrix. Owners believed that they could better manage their expenses with new homes all in one location and provide a more uniform experience for tenants, he said. Firms began buying entire for-sale subdivisions and converting them to rentals, or building rental developments from scratch.
“There’s still an inadequate supply of housing, the cost of housing has continued to rise, renters are renting longer,” Ressler said. “The large providers are looking at build for rent as a legitimate strategy to be able to fulfill demand for those people that are on a budget and looking to have a larger square footage than an apartment.”
The build-for-rent boom has been concentrated in Texas, Arizona and other Sun Belt communities where land is cheaper and space is at less of a premium than coastal California. Here, the phenomenon is most prominent in the Inland Empire, long where Southern Californians have ventured for new, relatively affordable homes while remaining on the fringes of Los Angeles and Orange counties.
A few years ago, Bill Shopoff, founder of Irvine-based Shopoff Realty Investments and the owner of the SolTerra project in La Quinta [and The Block on Elliot in Mesa, Ariz.], commissioned a market study. It found that there were about 60,000 renter households within Southern California that desired and would qualify financially to live in three-bedroom homes. But over the last two decades, he said, only a small fraction of the rental stock built in the region had three or more bedrooms, he said.
“That looks like a hole in the market that we should be trying to solve for,” Shopoff said.
Shopoff, who has 45 years of real estate experience across the country, originally planned to develop SolTerra as a for-sale property and then shifted to build for rent.
Not much changed about how the community was going to look, he said, except the decision to put in an on-site leasing office.
The three- and four-bedroom homes, which are one or two stories with Spanish-style roofs, come with colorful mosaic tiles on the entryways. Every house has a private garage and patio, quartz countertops and soaking tubs in the primary bathroom. SolTerra has a large community pool, clubhouse and multiple small parks.
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