Invitation Homes CEO Sees Build to Rent Communities as Major Growth Driver

I think as mortgage rates can settle, as the bond markets hopefully can settle, you'll start to see a bit more pick up in the transaction volume. I also think we need to see entrepreneurship in terms of how people think about living. You know, the for lease segment, which we operate in, is just one small blip. The rent-to-own category, some of these other categories that create flexibility for younger demographics, which candidly really want flexibility. They're not making the same decisions as my parents did or even I did. They want to be flexible, they want optionality, they want maybe a lease with an option to purchase later. I think as companies evolve and start to offer these products, you're going to see a much more dynamic housing environment. One that gets a bit more predictable in terms of customer segmentation, and maybe one that ultimately is a little less dependent on where mortgage rates are.

Thanks for having me, Diane.

Well, the affordability gap today is still fairly wide. It's pretty significant. Roughly about $1,000 a month in our market. So, that means if you were to rent today versus own, you'd save on average, call it $12,000 a year. Just as you sort of equate the cost of a mortgage versus the cost to rent. Um, that dynamic is continuing to create sustainable demand really for our product. We see that in sort of two areas. First is our renewals business, which the customer continues to stay longer and longer. The average customer is pushing close to four years now. On the West Coast, it's even higher. And then the second is just how quickly when a home turns are we actually getting a new resident in place, and that continues to be, in even a shifting fundamentals environment, still really strong.

You know, we survey people on the way in and we survey people on the way out. On the way out, the numbers are pretty much the same except for one category, which is we see fewer and fewer people purchasing a home today. So, that number is traditionally called 24, 25%. That's been sort of 17, 18%. Coming into our product or using Invitation Homes as a form of leasing, we see about 80% of our customers are coming from another single-family home they have rented. So, a lot of times it's defined by location, or they want a graduated service level which Invitation Homes provides.

Well, first it's going to play a very big role as we grow our business and expand our footprint and also enhance some of our quality offerings. So, you think about purpose-built communities and what they can offer outside of maybe a scattered site product. We can do a number of things from an amenity perspective. We can do a number of things in terms of how we maintain yards, how we keep that experience feeling fresh and fun and all the things that a customer would want. And then I would also add that it also gives us optionality as we think about our balance sheet and how we want to structure deliveries, what times of the year do we want to take deliveries on. You know, there are certain times where it is better to take on new product as you're finishing out a community versus others. And it also diversifies and gives us greater latitude with how we work with our partners in home building. Just because we have a build-to-rent platform now doesn't mean that we can't do a lot of business with both public and private home builders. Coupled with our lending capacity, we've done almost $300 million of loans this year to small regional developers. There's a symbiotic relationship between both new opportunities that we could build, opportunities to lend to customers, maybe potentially be their GC, and then potentially could be their property management outfit as well. So, we're really excited that by adding the ResiBuilt platform in, fully encompassing Invitation Homes, it actually just creates better optionality for us, which is better for our shareholders in the long term.

Well, first, we're caught in a bigger conversation around affordability. I mean, the cost of everything has gone up. Price of fuel right now is like five bucks a gallon, depending where you are in the country. The cost of homeowners insurance, property taxes. So, in this broader narrative in the political landscape, I think it's easy to try to pick somebody or an industry to be a boogeyman. The truth of the matter is, going back to the 1960s, about two-thirds of the country have owned something, and about a third of the country have leased something. In that third that lease, industry like ours makes up about 2 to 3% of the overall population. So, the reality is we've sort of been painted with a brush that we're the problem, not the solution. I think what's been interesting in the current debate has been we've actually had quite a few even media outlets come to our defense. They were like, 'Hold on here. These guys are adding new supply. They're doing a lot of things that are very productive.' You know, most of the industry, if not all, nobody's buying homes one by one like they were in 2012 post-GFC. People are really just building product and trying to refine the service model. And so, I do think that what we've tried to take an approach is just sort of think about how we can just stay level-headed and rational through the conversation, make sure that we're available, and also communicative on all sides of the discussion, and then continue to do what we do best, which is build great product, enhance our services, and have a customer that continues to renew almost 80% of the time. If we do that, we're going to be fine as we sort of weave through the political landscapes. And then, you know, these things come and go. There will be a new boogeyman and a new issue, I'm sure in short form. But the reality is we've had actually really productive conversations with both sides of the aisle, the administration, some at the state level. But we're in housing. It's a social business, and it's one that we're always going to be part of a discussion on. And candidly, I hope that the elevated levels of service that we provide, the customer feedback that we share, and also the product over time will sort of refine the category so that everyone wants that type of an experience and it'll actually just lift the quality standards overall.

Mortgage rates are one. You know, today we sit sort of in the mid sixes from a mortgage rate perspective. On a seasonally adjusted number, there's somewhere between four and four and a quarter million homes that are selling, both new and resale. That number should be like five, five and a half million. So, you have a bit of a stagnant sort of flow. There's no flow. We should say the current isn't moving. Our fundamental belief is we want to see a lot of housing transaction volume both in the for sale space and also in the for lease space. You're not seeing that yet. I think as mortgage rates can settle, as the bond markets hopefully can settle, we'll start to see a bit more pick up in the transaction volume. I also think we need to see entrepreneurship in terms of how people will think about living. You know, the for lease segment which we operate in is just one small blip. The rent to own category, some of these other categories that are creating flexibility for younger demographics which candidly really want flexibility. They're not making the same decisions as my parents did or even I did. They want to be flexible, they want optionality, they want maybe a lease with an option to purchase later. I think as companies evolve and start to offer these products, you're going to see a much more dynamic housing environment. One that gets a bit more predictable in terms of customer segmentation and maybe one that ultimately is a little less dependent on where mortgage rates are.