The Future of Build-To-Rent Communities
The rise of build-to-rent (BTR) communities marks a significant shift in the landscape of housing and real estate, reshaping how we think about home ownership and rental living. This emerging trend comes at a time when America is experiencing changing demographic preferences and challenging economic situations and is poised to transform the future of housing.
Given this backdrop, the BTR sector demonstrates robust economic performance, even amid broader market fluctuations. For instance, with a rate close to 7%, build-to-rent rent increase is still significantly higher than the rates before the pandemic. Furthermore, throughout the pandemic, build-to-rent properties experienced no reduction in average rent.
The appeal of BTR communities lies in their unique blend of flexibility, convenience, and modern living. They cater to a diverse demographic, from millennials who are delaying home purchases due to economic pressures to baby boomers looking to downsize without sacrificing lifestyle quality.
As we dive into the future of build-to-rent communities, we will explore how they are redefining the rental market, their impact on local economies, and their potential to address some of the pressing housing challenges of our time. But first, let’s fully understand what build-to-rent communities really are.
What Are Build-To-Rent Communities?
Build-to-rent communities are typically developments that encompass high-quality, professionally managed rental homes, such as single-family houses or townhomes. These properties are typically operated by a single entity (management company) responsible for all aspects of property management. This includes leasing, landscaping, repairs, and maintenance, ensuring a consistent and high-standard living experience for residents.
One should note that build-to-rent communities are multifamily properties, although they may consist of single-family properties. One of the defining characteristics of BTR homes is the level of privacy they offer. Unlike traditional multi-story apartment complexes, BTR properties usually do not have residents living above or below each unit. This design significantly reduces noise and increases privacy, making it an attractive option for many renters.
As for the types of built-to-rent homes, these typically include:
- Single-Family Homes: These are reminiscent of traditional suburban neighborhoods and are situated on separate lots, providing tenants with the privacy and space typically associated with homeownership. One of the appealing aspects of BTR single-family homes is their inclusion of community amenities. These include parks, recreational facilities, or community centers, enhancing the living experience and fostering a sense of community.
- Duplexes: A staple in many BTR developments, they comprise two attached residential units, making them a perfect middle ground between single-family homes and more compact living spaces. They are particularly favored for their balance of privacy and community. In a duplex, residents enjoy their own separate living space while sharing a common wall with their neighbor, offering a blend of community feel and individual privacy.
- Row Homes: These are homes built side-by-side, sharing common walls and forming a continuous “row.” This architectural style is not only space-efficient but also offers a unique aesthetic appeal. Row homes in BTR developments are often sought after for their urban feel and the convenience of being close to city amenities and workplaces.
- Small Lot Homes: These are single-family residences built on smaller-than-average lots, typically around 600-700 square feet, as opposed to the standard 5,000 square feet lots. This type of home offers the benefits of a single-family residence – like privacy and individuality – while being more affordable and easier to maintain. It’s an ideal solution for those who desire a standalone home without extensive upkeep.
Interested in exploring the growing world of Build-to-Rent communities? Contact us to access the most detailed and up-to-date information on these unique multifamily properties.
The Current State of the Build-To-Rent Market
The build-to-rent market is currently flourishing, with a noticeable uptick in both interest and investment. According to a report from the Urban Land Institute, the build-to-rent segment represented a substantial portion of all new home constructions (132,000) the previous year, signaling a shift away from traditional home buying.
Moreover, investment in this sector has skyrocketed, with real estate investors allocating more funds to build-to-rent multifamily projects. For instance, SMART Apartment Data’s research indicates that in Texas alone, there are currently more than 4,500 build-to-rent units under construction. This reflects the strong demand for rental multifamily housing that offers the amenities and sense of community typically associated with home ownership.
Several factors are driving this demand, and they can be categorized into renter demand drivers and investor demand drivers.
Renter demand drivers include:
- Favorable Millennial Demographics: A substantial driver of build-to-rent communities comes from Millennials, who are increasingly opting to rent by choice. This demographic shift is influenced by various lifestyle preferences, including the desire for mobility, less responsibility of homeownership, and the appeal of community-centric living spaces offered by BTR developments.
- The High Cost of Homeownership: As the cost of purchasing a home continues to rise, homeownership is becoming less accessible, particularly for younger generations. This economic barrier is pushing more individuals towards the rental market, where build-to-rent homes offer a viable and attractive alternative to traditional homeownership.
- Increasing Need for Financial Flexibility: In an era of economic uncertainty, many individuals are prioritizing financial flexibility over the long-term commitments associated with buying a home. Renting, particularly in BTR communities, offers the advantage of predictable monthly expenses without the unpredictability of home maintenance costs.
- Remote Work and the Need for More Space: The shift towards remote work has amplified the need for larger living spaces. BTR properties often provide more spacious and adaptable living environments compared to traditional apartments, making them an ideal choice for remote workers.
- Appeal of Less Dense Neighborhoods: There’s a noticeable shift in population migration patterns, with a trend towards less dense, suburban neighborhoods. Build-to-rent developments, often located in these less dense areas, are becoming increasingly appealing for those seeking a balance between urban and suburban living.
- Access to Outdoor Space and Amenities: The desire for access to outdoor spaces and high-quality amenities is a significant factor in rental decisions. BTR communities typically offer an array of amenities, including green spaces, fitness centers, and communal areas, which are attractive to renters looking for a lifestyle that balances comfort, convenience, and community.
As for the reasons why investors are showing increased interest in build-to-rent communities, they include:
- Outsized Rent Growth & Low Vacancy Rates: One of the primary attractions for investors in the build-to-rent market is the combination of higher-than-average rent growth and lower vacancy rates. These factors contribute to a more stable and predictable revenue stream, making BTR properties a compelling investment compared to other real estate sectors.
- Strong Net Absorption & Lower Resident Turnover: The BTR sector is witnessing strong net absorption, indicating a growing number of renters moving into these properties. Coupled with lower resident turnover rates, this trend ensures a consistent and long-term tenant base, reducing the costs and uncertainties associated with frequent tenant changes.
- Diverse Set of Consumers: BTR properties appeal to a broad and diverse consumer base. From millennials and young professionals to small families and downsizers, the wide range of demographics attracted to BTR properties ensures a robust and resilient demand, which is a key factor for investors.
- Product Diversification for Multi-Asset Investors: For investors with multi-asset portfolios, BTR properties offer an excellent opportunity for diversification. Investing in the BTR sector can balance their investment portfolio, spreading risk and potential for returns across different asset types.
- Exit Optionality: BTR investments provide flexibility in exit strategies. Investors can choose from a range of options, from selling individual units to divesting the entire property.
So, what does the future hold for build-to-rent communities? We’ll discuss that in the final section of this blog.
What the Future Holds for Build-To-Rent Communities
The build-to-rent sector is on the brink of a transformative era. Insights from Forbes Magazine project a staggering increase in American families opting for single-family rentals. By 2030, the number is expected to soar to 28.8 million, marking a growth rate of 6.19%. However, this promising trend is shadowed by a supply challenge.
Currently, the market sees only 40,000 new built-for-rent homes annually. Unless this pace accelerates, we could face a significant supply shortfall by 2030, with only about 16.2 million homes available to meet this burgeoning demand. Other notable trends in the build-to-rent space include:
- Competition in Amenities: Renters are now prioritizing utility in their homes, with features like garage access, ample backyard space, and dog parks becoming increasingly crucial. These evolving preferences reflect a shift in what renters value in their living spaces, pointing to a future where BTR communities must innovate to stay competitive and relevant.
- Shift in Housing Preferences: More people are seeking the comforts of single-family living without the commitments of ownership. BTR communities are uniquely positioned to cater to this preference, providing the feel of a single-family home with the flexibility and convenience of renting.
- Increasing Housing Supply to Meet Demand: By focusing on building rental homes, developers can significantly contribute to easing the housing supply crunch. This increase in supply is not just a response to demand but also a strategic move to harness a growing market segment.
- Appeal From the Ever-Maturing US Population: Build-to-rent communities are highly appealing to renters aged 35 and above, often looking for a stable, community-oriented living experience. This demographic typically prefers the privacy and space of single-family homes but values the flexibility and lower maintenance responsibilities that come with renting. As the US population continues to age, the demand for build-to-rent communities is only expected to increase.
In conclusion, build-to-rent communities are not just a fleeting trend but a significant evolution in the housing market. With the right strategies and innovations, they have the potential to reshape the landscape of housing in America, offering solutions that are responsive to the needs of today’s and tomorrow’s renters.
Build-to-rent communities stand at the forefront of a new era in real estate, poised to offer quality, flexibility, and community-driven living experiences that could redefine the very concept of ‘home’ for millions of Americans.
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