Top experts in the build-to-rent industry analyze the current growth of these communities and the reasons behind the increasing demand in 2022.
Build-to-rent housing communities are more popular than ever before in 2022. Homebuilding companies are adapting to the requirements and limitations that people are facing in an ever-increasingly expensive housing market by offering an alternative. Build-to-rent communities feature both single-family and multi-family units which are specifically built to be rented out.
Build-to-rent (BTR), also known as built-to-rent or built-for-rent (BFR) homes, are available in different styles and plans. For many, buying a home is out of reach, leaving renting as the most viable option. Yet, many families would still like the benefits of living in a larger, traditional single-family home, but without the burden of a down payment, high interest mortgage, and unmanageable maintenance costs.
We have spoken to top experts working in the build-to-rent industry to comment on and analyze the current state of this sector; the growth in construction, who is driving the demand, where the most populous communities are in the country, and what amenities are attracting renters.
There has been a whopping 106% increase in the amount of single-family build-to-rent (SF BTR) homes under construction in the U.S. in 2022 since 2021, compared to the 36% increase the year previous.
According to data taken from RentCafe, there are currently 13,910 SF BTR homes under construction in the U.S. (where data is available). The total number of these buildings being constructed has steadily increased over the previous 4 years, as seen in the graphic above. However, it is in 2022 where we see explosive growth.
Yet this number could be significantly higher. In a later section well explore conflicting data, and why the real number of build-to-rent home starts could be as big as 110,000 to 120,000 in 2022.
Taking into account that this data only applies to single-family rental homes, Trevor Koskovich at Northmarq, capital real estate investment experts, states that, We are seeing a massive development pipeline because the product has fared well operationally across the U.S. It [SF BTR homes] has proven to be the more desirable rental option in comparison to traditional multifamily. He goes on to comment on the financial benefits which are attracting companies, by saying, There was also a tremendous amount of capital raised in the space and developers are deploying that money aggressively. I think there has been a demographic shift and tenants really prefer this type of product.
Sarah Cunningham, Owner of Ethos Design + Build | Remodel, echoes the perceived financial positives for companies, which could go some way into explaining the rapid growth, stating that, Single-family build-to-rent properties are viewed as a good investment since many people can't afford the large down payments currently required to purchase a home. Yet she warns of repercussions for homeownership availability; They are designed for long-term renters, but they are also creating housing stock that is not designed for home ownership and continues to make it difficult for first-time buyers to find a place to live.
In a 2021 survey conducted by Fixr.com to 48 construction experts and professionals, a majority of 44% believe that couples with kids are the biggest driving force behind the demand of SF BTR housing. This is followed by 30% who believe couples without children are the biggest demographic renting out these types of homes. With or without kids, it would seem that the traditional family demographic is the most commonly attracted to renting a single-family home.
There are also age demographics and peoples financial situations to consider; two key elements that go somewhat hand-in-hand in the current housing climate. We ask experts to share their thoughts on this:
Brad Hunter, President of Hunter Housing Economics, draws on the parallels between millennial families and financial limitations, along with the positives of BTR housing, by commenting, Millennials are starting to have children, and demographic projections show that more of them will start families over the next few years. This is one of the drivers of built-for-rent demand; young couples with babies and toddlers want to be in the suburbs and to live in a home that has a yard for the kids to play in. Sometimes they can't afford to buy, at least right now, so renting a single-family home makes a lot of sense for them.
Koskovich agrees, saying, Millennials that are just starting a family and usually have a pet, this is the first step towards eventual home ownership. It is somewhat of a launching pad, more room to grow and the opportunity to test living in the suburbs. He continues to explain that BTR housing is not limited to millennials, however: For the baby boomers and the older demographics, it allows them to monetize the home that they may own free and clear and to move to a fixed cost of living.
The Phoenix Metro area leads the way in terms of the amount of homes in build-to-rent communities. There are currently 6,420 BTR houses in this metropolitan area, making it the most populous area in the U.S. for this type of housing.
The Columbus and Dallas Metro areas round out the top 3 with 4,780 and 4,290 BTR homes respectively. Houston Metro (3,600), Riverside Metro (3,540), Las Vegas Metro (3,260), and Kansas City Metro (3,170) all feature over 3,000 BTR homes. All the other metropolitan areas that appear on the map make up the rest of the top 20.
The popularity of BTR homes is not limited to one area of the country. As the above map shows, the demand is spread nationwide.
Cunningham shares insights from the forefront of the industry in her local area: It [the BTR industry] will continue to grow so long as we have an inflated housing market. The market goes up and down, but in communities like Boise (my hometown), theres always housing demand, low inventory, and people moving here in increasingly large numbers. Investors see it as a no-brainer.
Koskovich predicts even wider-spread growth: I believe we are still in the early stages of BTR, we will continue to see it expand in most markets across the country.
What is the appeal of build-to-rent homes and communities? According to the professionals we surveyed, 37% agree that the draw of living in a home with features such as patios, decks, and balconies are key. Another 37% also mentioned the benefit of having parks and recreation areas as a convincing factor. Other amenities, including pools, green space, gyms, and dog parks, add to the appeal of living in build-to-rent communities.
We asked experts to comment on these features and mention what others make the difference between traditional rentals, and those that are built-for-rent.
Hunter explains that, When a BTR builder constructs a home, it is with a great deal of attention to durability and ease of maintenance. That builder (or the investor/operator partner of that builder) knows that this home has to be able to withstand and resist pet damage, spills, and other mishaps.
Taking into consideration the aspect of easily maintaining a rental home, Hunter continues to detail specific materials and design plans, saying, That's why most of the projects I'm seeing in the BTR world feature luxury vinyl plank flooring, which looks great, and is very resistant to scratches and will not warp if a drink is spilled on it. I'm also seeing home designs that allow maintenance workers to service the air conditioning systems and other HVAC systems via the garage, which is less intrusive for the tenants.
Cunningham agrees with the surveyed experts, commenting that, ...people want amenities similar to what they can have in a neighborhood. This includes pools, parks, gyms, and some retail as well.
Koskovich highlights garages as a key feature of BTR housing, as well as considering the popularity of having a dog as a pet: BTR is all about garages and backyards, this is what the core product is about. 70% of this tenant base will own pets (mostly dogs), to that point dog parks and pocket parks are in the communities to walk the dog and meet your neighbors.
While current growth in the build-to-rent sector is there for all to see, the reasons behind its continued popularity moving forward seem to be mainly as a result of continued financial restrictions. Hunter says that in 2022, Demand is already increasing rapidly, and the surge in mortgage rates has only accelerated the growth.
Predicting an ever-increasing boom in this area of the housing market, Koskovich claims that, This segment of the market is here to stay, it will continue to expand and evolve and we expect it to be the fastest growing residential sector in the U.S. in the year ahead.
However, not everyone is enthusiastic about the outlook of BTR housing. Cunningham questions the fallout of such a high increase in rental properties: I question if build-to-rent is truly a desirable alternative for anyone in the long run. [...] Build-to-rent makes great economic sense for investors but its bad for communities. Its making it harder for people to access homeownership. When that opportunity is taken away, like it is in communities like mine where theres already low housing stock, its harder for people to create personal and generational wealth.
It is important to note that the data analyzed in this article may only tell a fraction of the story. According to NAHB analysis, there were approximately 13,000 SF BTR home starts in the first quarter of 2022 alone, and 51,000 overall in 2021. Meaning that the number of starts in 2022 is set to be significantly greater than the data suggested by RentCafe. Also, the data analyzed by NAHB does not take into account homes that are sold to another company for rental purposes. Brad Hunter, President of Hunter Housing Economics, points out that this means there were an estimated 85,000 to 95,000 build-to-rent starts in 2021, and a predicted 110,000 to 120,000 in 2022.
Whichever statistic you choose to analyze, one thing is clear: The build-to-rent sector is growing at a rapid pace with no signs of slowing down in 2022 or the near future.