• D.R. Horton, America's Largest Homebuilder, Plans Growth Spurt for Rental Business

    Homebuilding giant D.R. Horton plans to invest more than $1 billion as it scales its rental business in fiscal 2022. (iStock)
    Homebuilding giant D.R. Horton plans to invest more than $1 billion as it scales its rental business in fiscal 2022. (iStock)
    By Candace Carlisle
    CoStar News
    The nation's largest homebuilder, D.R. Horton, is setting aside $1 billion to invest in its multifamily and single-family home rental platform as that market surges across the United States.
    D.R. Horton is positioning its rental operations to be "a significant contributor" to its revenue, profits and returns in coming years, executives said in its fiscal fourth-quarter earnings call Tuesday. The Arlington, Texas-based company, which builds rental houses to sell to investors, expects to expand its total rental inventory by more than $1 billion during its fiscal year that started Oct. 1 and runs through Sept. 30, 2022.

    "It is a white-hot build-to-rent business especially the way we're positioning these projects as affordable housing," said David Auld, D.R. Horton's president and CEO, during the call.

    In the past fiscal year, D.R. Horton generated nearly $270 million in revenue from sales of its rental properties, including $191.9 million from three multifamily sales totaling 960 units and $75.9 million from selling single-family rental properties totaling 260 homes. In fiscal year 2022, the homebuilder plans its rental platform to generate more than $700 million in revenue from rental property sales.

    "We want to do things that are sustainable and scalable, and I can tell you the rental side of this market certainly seem sustainable and with our platform is scalable," said Auld.

    Other major U.S. homebuilders such as Lennar Corp. and Toll Brothers are also using the massive scale they've built from decades of constructing houses for sale to jump into the fast-growing single-family rental home industry. The companies are looking to take advantage of a limited U.S. housing supply that is contributing to increased rents, renewals and numbers of renters as single-family home prices reach record highs.

    As U.S. housing supply constraints have intensified, large investors have stepped up rental home purchases and one in every six homes bought in the second quarter of 2021 was purchased by investors, according to the White House.

    D.R. Horton's top five markets include three metropolitan areas from its home state of Texas. (D.R. Horton presentation, Q4 2021 earnings call)

    D.R. Horton just got into the single-family rental home market this year with a neighborhood in Charlotte, North Carolina, near the University of North Carolina at Charlotte that features homes with chef-inspired kitchens and smart home technology.

    The builder's rental property inventory has grown from $316 million a year ago to $841 million by the close of the fiscal year. The builder has inventory in major U.S. markets, including 15 multifamily properties in the construction pipeline and one multifamily property substantially completed for a total of 4,690 units. The company's rental inventory also includes 55 single-family home rental communities totaling 2,650 homes and finished lots, with 865 homes being complete.

    D.R. Horton completed more than 80,000 homes over the past year, claiming about 10% of the market share for new homes, and is on its way to close on more than 100,000 homes, said Auld.

    The builder, like other companies, is working around supply chain delays and labor shortages and carrying more inventory as a result of those delays.
    Partnerships with vendors, made stronger by consolidation in the industry, have helped in making sure the company has the materials it needs to produce homes, Auld said.

    The supply chain delays have added about seven weeksto the construction timeline of a new home, executives told investors. The builder said it has been grappling with tight labor markets for the past decade.

    "We continued restricting our home sales pace during the fourth quarter by selling homes later in the construction cycle to align with our production levels and better ensure certainty of home closing date for our home buyers," Auld said. "We expect to work through the supply chain challenges and ultimately increase our production capacity."

    Source: CoStar Group, www.costar.com