Building Homes for Renters

Is the build-to-rent market the future of American housing?

By DAVID HOWARD

Over the past several years, build-to-rent has become the darling of the housing industry. With the housing market stretched increasingly thin by a lack of supply and more and more Americans choosing renting over owning, the sector offers a unique business model that is bringing desperately-needed new housing units to market while meeting an important demand in the marketplace.

The superlatives used recently to describe the build-to-rent sector are impressive: “exploding,” “still booming,” “hotter than ever.”

Build-to-rent is a subset of the larger single- family rental market. SFR has long been a key part of the American housing economy, but the sector began to mature coming out of the Great Recession, when companies purchased large quantities of vacant homes, helping to backstop the collapsing housing market, converting them to long-term, professionally- managed rentals.

The rise of SFR demonstrated the power of technology — necessary to efficiently manage portfolios of single-family homes — and consumer demand. But as the housing market has recovered, that supply of vacant homes that SFR companies used to build their early portfolios has dissipated.

Enter build-to-rent. On their own or in partnership with some of the nation’s largest legacy homebuilders, like Lennar and Toll Brothers, owner-operators of SFR homes are increasingly turning to building new housing units as a way of bolstering their rental portfolios. According to one estimate, approximately one in every 20 new single-family homes between the second quarter of 2018 and the second quarter of 2019 was built-to-rent.

Like any maturing sector, there are a diverse array of strategies and models within the build-to-rent sector. Some operators are supplementing existing portfolios of SFR homes, while others — like NexMetro and AHV Communities — are pursuing build-to-rent as a standalone business model. Many build-torent communities offer popular amenities like a pool and a gated entrance, while some even provide perks more typically associated with apartment buildings, like fitness centers and car charging stations.

Build-to-rent is also coasting on continued strong demand for single-family rental homes. Since 2009, homeownership has declined by 3.6 million while the number of renters has grown by 1.9 million. More Americans are renting today for a variety of reasons, including demographic shifts such as an aging population and young adults delaying major life decisions like getting married and having children. Some can’t easily get a mortgage, and others enjoy the flexibility of not owning a home. One in five Americans now says they don’t plan to buy a home in their lifetime.

That demand is showing no signs of ceasing, and it’s why single-family rental has become the fastest-growing segment of the housing market. Particularly as more and more millennials are forming families, SFR homes offer more space at a lower cost per square foot than multifamily, as well as access to high-quality school districts, parks, public transportation, and safe neighborhoods — and added benefits like a garage and backyard.

What’s more, build-to-rent is bringing badly-needed new housing units online at a time when housing affordability is top of mind for the industry, policymakers, and renters. Particularly in high-demand urban markets like New York and San Francisco, a shortage of available housing units has driven up costs.

Contrary to misguided calls for policies like rent control that are counterproductive to the cause of affordability, encouraging build-torent and other sectors that are bringing new housing to market is the only sustainable path forward. States and regions that have encouraged housing development have seen their populations benefit as a result: of 6.8 million new home starts in the U.S. the 2000s, 54 percent were in the South while only 23 percent were in the West, home to some of the most acute affordability crises. Meanwhile, southern states like Florida and Texas are among those where build-to-rent has thrived.

Looking back at home building during the 2010s, National Association of Home Builders chief economist Robert Dietz wrote: “After the Great Recession, the number of homebuilders declined significantly, and housing production was unable to meet buyer demand. This deficit of housing in the United States continues to exist because of persistent supply-side headwinds for builders, creating a critical housing affordability challenge for renters and homebuyers.”

As we enter a new decade, it’s on all of us to encourage innovative solutions to this challenge. Build-to-rent meets consumer demand for affordable single-family homes in good neighborhoods while helping bring new units to market that will ease the housing crunch facing millions of families. It might just be the future of American housing.

David Howard is Executive Director of the National Rental Home Council (NRHC). Learn more at www.rentalhomecouncil.org.

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