To keep up with demand, builders who neglected to buy land during the downturn must now pay top dollar for prized city-center locations. Their profit margins are likely to be squeezed this year, even as house prices rise.

As Real Estate Fundamentals Improve, Investors and Builders Dropping Billions of Dollars on Developable Land

Rents for single-family homes are rising slower than property prices as firms such as Blackstone Group LP flood the market with homes for lease, posing risks to investors betting billions on the burgeoning market.