Study Shows Build-to-Rent Market in ‘Turbo Mode’

As millennial families grow, remote or hybrid work becomes more common, and the cost of buying a home continues to skyrocket, the single-family rental sector of the housing market continues to blossom—and that means build-to-rent homes and communities are gaining popularity.

As Josh Craig, Chief Revenue Officer for Lima One Capital, explained to DS News several months ago, build-for rent "are purposely built communities to be rentals long-term. Most are designed to be mid-to-lower priced so they can be affordable. They’ll have slightly smaller square footage and slightly less interior finish [i.e., good, but not top-of-the-line appliances, etc.] than a retail for-sale home.”

Fixr.com, a company dedicated to home remodeling, has conducted and published a study related to build-to-rent single-family homes. It showed the market is evolving based on the needs and desires of homebuyers and renters. Fixr author Adam Graham spoke with Brad Hunter, President, Hunter Housing Economics, and Brent Landry, SVP of Development, American Homes 4 Rent, to gain more understanding of this sector of the industry.

Graham writes that build-to-rent homes, whose sector has "remained steady over recent years with a small share of the market," show "potential for imminent growth" due to several factors at play in today's market.

Fixr points to one recent study that showed around 60% of Americans lack the funds for a national median-priced home, making renting a more feasible option.

Hunter told Fixr, "There are two groups who gravitate toward BTR: those who cannot afford a home, whether because of the higher monthly cost or the lack of funds for a downpayment and those who are renters by choice."

When considering which household demographics are most likely to opt to live in a build-to-rent home, 44% of respondents to Fixr's survey believe that it is a couple with kids.

"This makes sense when considering that one of the main appeals of this type of construction is the extra space gained compared to that of a condo or multi-unit property, for example," Graham noted. That said, 30% of the experts surveyed believed that a couple without kids are likely to choose BTR communities, that the extra space could also be beneficial to people without children who have found themselves working from home more often.

As the market shifts, the differences between build-to-rent and the typical for-sale home shrink, the experts tell Fixr.

“Built-for-sale communities come in all sizes, finish levels, and price points. You will see the same breadth of choice emerge in rental communities," Landry said.

The coronavirus pandemic has put the build-to-rent market in "turbo mode," Hunter said.

Landry added, "That’s because a lot of people who used to rent apartments are now craving more space, more windows, and more fresh air. The pandemic really forced people to evaluate how satisfied they were with their current housing situation.”

The third quarter of 2020 saw a 27% year-on-year increase in single-family build-to-rent starts, Fixr reported. One thing that slowed down construction on a year-over-year basis (i.e. a 22% decrease in Q1) has been the cost of building materials.

Of the experts Fixr questioned, 53% were unsure of the pandemic’s influence but suggested we are likely to see demand continue to grow as the cost of buying a house becomes increasingly out of reach for many.

According to Hunter, “There were 64,000 BTR homes built last year, and it could rise to 80,000 this year if developers can find enough land. They are chasing the demand, which is already well over 100,000 a year.”

As Graham concludes in his summary of the study, investors and construction companies "need to be aware of the changes in demands of people moving forward, and as we see house prices continue to go up, we may, in turn, see a growth in the sector of build-to-rent communities."

Fixr's expanded study plus methodology and more graphics is available at Fixr.com/blog.