We think of innovation as problem-solving. The result of it is often the ability to produce more value with fewer costs in money, time, talent, or some other precious resource. Doing more with less, in other words.

Pursuit of solutions to the problems of construction costs, economic uncertainty, and regulatory burden is the locus of a great deal of innovative effort and investment, among companies large and tiny. Firms look to solve operational problems that keep them from being more efficient, from saving money on construction costs, and from being more productive--able to generate more value per worker hour.

That's where the lion's share of innovation focus is, improving--sometimes by quantum leaps--processes that unleash greater productivity. This is our obsession these days, and why we feel our business community needs Hive, where focus is on action, investment, and outcomes related to innovation at the strategic and tactical-operational level.

What may not occur to us, though, is that innovation is not limited to the business world. Housing's problem right now--which is that there's not enough of it at all levels of the economic spectrum--is both business and society's problem. And, society has every bit the motivation to innovate as it tries to solve for the fact that America's cities, towns, and communities are under-built, as the business community that makes up the housing sector does.

And one way that society has innovated--in the form of housing preferences and choices--is to create a small but fast-growing in-between category of housing options--the newly-built single-family for-rent neighborhood.

The model--building new homes for people who would rent at least initially--has been around for decades, especially when home builders could count on being able to access cheap labor, acquire cheap lots, and achieve scale and efficiency by acquiring materials and products on an even-flow basis.

Homes under construction at Legacy.
Homes under construction at Legacy.

But now it's a strategic play--partly by virtue of young adults' more arduous personal financial pathway early in their worklives, partly by virtue of the rent-by-choice phenomenon that grew out of disenchantments of the homeownership insanity that blew up into the Great Recession, and partly because Big Data and construction operational processes now make the build-to-rent single-family business model more viable. AHV Communities and BB Living are slowly gaining traction and establishing an operational template for new single-family rental neighborhoods.

Among the financial and operational focal points the LGI Homes executive team spotlighted during its Aug. 7, second-quarter earnings call with investment analysts was an almost brand new segment of the Houston-based entry-level juggernaut's business: single-family for-rent new construction.

LGI ceo Eric Lipar's commentary, from a Seeking Alpha transcript, notes:

Another highlight of our record-breaking second quarter was the strength of our wholesale business. We closed the 103 homes this quarter with three different investment groups at an average sales price over $260,000.

This included 30 of the 47 homes that make up our first community located in the Seattle market that was sold exclusively through our wholesale channel. We believe opportunities like this are accretive to our business and offer us an avenue for potential growth.

That potential for growth reflects itself in the flow of national data from the National Association of Home Builders' analysis of Census Bureau Quarterly Starts and Completions by Purpose and Design, zeroing in on the the single-family built-for-rent starts in 2Q 2018.

Here, a note from NAHB chief economist Robert Dietz would seem to affirm Lipar's view of a growing opportunity for new home construction specifically for rent:

The number of single-family homes built-for-rent increased over the last four quarters. During this time period, construction starts of this type of housing totaled 42,000 homes, compared to 29,000 for the prior four quarters. There were 13,000 single-family built-for-rent starts for the second quarter of 2018.

At less than one of every 20 new homes started, the market share of new single-family rental homes may not call much attention to itself, but remember that 4.7% share is of a much higher absolute number of housing starts than when it hit its peak in early 2013, at 5.8% of total single-family housing starts.

The fact that LGI and other big national builders regard the single-family rental construction market--and the fact that 35% of for-rent households are in single-family units nationally--as a core strategic opportunity now reflects a fundamental shift in how housing preference and household formations now occur in the U.S. market.

In our minds, this strategic focus is coming about because of a societal innovation, not the other way around. People are making choices, and voting with their feet and their pocketbooks how they want to live, and if the range of housing typologies already out there does not offer something they want or need, they'll cause it to surface by finding a disrupter.

As a result, today there's an investment asset class, a data model, a business model, an infrastructure of key players in different markets, an operations model, and a construction model for single-family rental. Twenty years ago, the practice was a random, ad hoc activity that some firms did and many did not need to do.

Society's got a housing problem--too many bidders, renters, would-be households for too few houses, apartments, communities--and single-family for-rent now figures in for good as one of the ways society is innovating to solve that problem.

As LGI ceo Eric Lipar notes from a business standpoint, "it's an avenue for potential growth."