What is Build-to-Rent?
As demand drivers change, incomes shift, and renters’ priorities adjust, major homebuilders are pivoting their focus to purpose-built, single-family rental homes, otherwise known as build-to-rent properties. These homes are constructed from the ground up for the specific purpose of renting to tenants. Due to increased home prices, higher lending rates, preference for renter flexibility, and new housing standards, this product type has emerged in popularity. To put this into perspective, homeownership in the country is currently below 66 percent and is expected to decline over the next 20 years.
According to Harvard Joint Center for Housing Studies’ Rental Housing 2020 report, all single-family rentals–both existing homes and new BTR units–grew a whopping 18% from 2008 to 15.5 million units, or about a third of all rental units nationally.
Build-to-rent (BTR) is an evolutionary development trend featuring professionally managed communities of single-family rentals (SFR). These communities aren’t just low-density multifamily properties or clusters of single-family tracks but instead are more akin to traditional, gated single-family neighborhoods with community amenities. These homes are typically larger (three or four bedrooms), located in prime areas with quality schools, and provide easy access to jobs, culture, and recreation.
78% of 3,300 renters are interested in living in an SFR community. Source: RentCafe
Who Rents BTR Properties?
Residents in the United States have fundamentally changed the way they think about the American Dream, what they value, and how they choose to live. For a growing number of people, this means they would rather choose to rent than own and want more than what the traditional housing market can offer. Renters are attracted to the product because there are currently limited rental options available on the market, and residents have changed their housing preferences. BTR properties offer a sense of community with more space and ease of access to retail, employment, and major transportation corridors. They also provide the privacy, quality, convenience, and luxury typically found in downtown metros, without the hustle-and-bustle. The types of renters looking at BTR range from professional millennials to baby boomers and people in a transitional period such as a divorce.
Top 10 Metros for Single-Family Build-to-Rent Completions | 2023
Source: RentCafe
- Phoenix | 4,030 Units
- Dallas | 2,694 Units
- Atlanta | 1,981 Units
- Austin | 840 Units
- Charlotte | 714 Units
- Myrtle Beach | 651 Units
- Kansas City | 636 Units
- Columbus | 625 Units
- San Antonio | 587 Units
- Nashville | 537 Units
Why are Investors Interested in BTR?
When it comes to alternative investments, build-to-rent or single-family rentals are tough to beat. This product delivers excellent returns through appreciation and rental income, presenting BTR as one of the most risk-averse investment opportunities. Niche players and large publicly held investors are attracted to the perfect trifecta of affordability, flexibility, and demand offered by BTR. There is also plentiful availability of financing for the product type.
BTR developer Taylor Morrison ranks no. 6 on the 202 builder 100 list of homebuilders and predicts BTRs could eventually represent half of their output if the trend continues. Source: NAAHQ
Homeownership rates across the country are steadily declining, causing rental vacancy rates to go down and median asking rents to rise, all while being in the middle of an inflationary period. In conjunction, real estate investors and developers are seizing this opportunity created by housing shortages and demographic shifts to fill the growing void in housing by delivering BTR single-family homes.
Players in Build-to-Rent
According to the National Rental Home Council, there are 860,000 more rental households in the country today than there were two years ago. Around 51 percent of the current single-family rental stock was built in the past five years alone. Though, the BTR market only comprises one to two percent of the U.S. apartment market. The nation’s largest apartment developer and manager, Greystar, has 3,500 BTR homes, boasting an occupancy rate of 96 percent.
Single-family rentals are often located in places where there is less presence of apartments. BTRs are seen as a more reliable source of income as a single buyer will purchase an entire BTR community who agrees to take ownership upon completion. Regarding for-sale homes, there are several individual homebuyers investing years ahead of time. Families who cannot afford to purchase homes still need housing with two to three bedrooms, but apartments offer very limited options for this.
Does BTR Compete with Multifamily?
The simple answer is no, BTR is not a competing asset class to multifamily, although they fall under the same roof. BTR is a logical stepping-stone out of multifamily for residents who have outgrown their apartments and are looking for the lifestyle provided by single-family homes. Residents in BTR communities want a different experience with low-density suburban living and specifically choose BTR instead of multifamily.
According to RentCafe, BTRs are seeing a 97% occupancy level, surpassing the occupancy level for apartments at 95%, which showcases the desirability.
These communities are not replacing buying a home, living in an apartment, or living in a single-family rental – this is a unique option that blends both worlds of single-family home living and carefree maintenance without a mortgage.
Top 5 Metros with BTR Homes in the Pipeline
Source: RentCafe
What Does the Future of BTR Look Like?
According to RentCafe, single-family rental construction posted its strongest year in 2022, with 14,541 new BTR homes constructed. In 2023, BTR homes were more than triple that record, with almost 45,000 new BTR homes constructed. In 2024, developers are working on more than 119,400 BTR units nationwide and have planned an additional 14,156 units.
BTRs appear to be the solution to many problems. People complain the most about renting an apartment because of limited space and the lack of backyards. Additionally, single-family rentals are ideal for pet owners, offering more space than a dense apartment. BTRs are increasingly becoming the new starter home. They help renters learn more about what goes into maintaining a home, like HVAC filters, changing light bulbs, or plumbing issues.
