"This increase in new construction is congruous with the strength in market fundamentals - strong performance is serving as a catalyst for new development," said Ryan Severino of Reis Inc. "If anything the amount of new completions that have been delivered up to this point is low relative to the strength of the apartment market. "
There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.
"We are still woefully short of what's going to be coming in terms of demand," says Buck Horne, a housing analyst at Raymond James. "Lennar is going where the demand is going to be. They're going where they know they can make money."
Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.
"You've got to be very selective about your locations," warns Miller. "We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place."
Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.
Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.
"In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later," says Miller.