Why Built-For Rent Single-Family Homes Are Booming

 A variety of demographics are attracted to this market

By Brad Hunter

It’s the hottest news in residential real estate. The built-for-rent single-family (BFR) boom is being fueled in part by the flight to the suburbs, which was already going on before the pandemic, but it has accelerated because of it. Millennials are finally having kids, which is driving them to want to have a home in the suburbs, with a yard, other kids in the neighborhood, parks nearby, and good schools. Adding to that demand: young singles and empty-nesters who want the convenience that comes with a professionally-managed rental community and who want something bigger than an apartment.

Builders and developers need to start thinking artfully about how to position themselves as competition increases within this market.”

The volume of BFR building rose to 60,000 in 2020, and is going to hit 100,000 in the next two years, according to my projections. But don’t worry: based on the demographic trends that are unfolding, we can double today’s BFR building volume without oversaturating this segment of the housing market, although it is possible (and likely) that certain submarkets will become crowded within the next two to three years. However, there is a strategy that can head off a competitive trainwreck.

Because there are all these different types of renters, there are also different types of communities and product configurations. Builders and developers need to start thinking artfully about how to position themselves as competition increases within this market. If they do so, they can avoid getting into a pricing knife-fight as more players get into this space.

Each segment of demand favors a different type of product. It is crucial to know your submarket and select your product using that intel.

Detached Single-Family
This option appeals to the renters who want to mimic the feeling of owning a traditional home, and who want more space. We see a lot of three- and four- bedroom configurations, and sometimes with a walkout basement. You can even find some five-bedroom units, which appeal to that family that needs a home office for each of the grownups, and some space for the school-age children to do their homework. This is also an attractive kind of house for those who want a big yard. People who have big dogs are a good example since you are looking at 4 or 5 units per acre. Now, with small-lot single-family, you can go higher. I’ve done market studies where some of the product ended up being 22-feet wide. You can easily get to 7, 8, or 9 units to the acre. I’ve seen some 20-foot wide detached products from David Weekley Homes on the for-sale side, and I expect to see that kind of product in BFR soon as well.

Townhomes
Here you get to eight units per acre, and you can get pretty easily to ten or more. Here the renter still gets private parking and private outdoor space, as well as that lock-and-leave convenience, which are three of the key elements here. This product type targets couples, families, empty nesters, and retirees.

Horizontal Multifamily
This confusing name describes the densest product type in BFR. You can get up to 12 units per acre. But how should you think about this product? All of the units will have private outdoor space, which is key, but it’s typical that most of the units do not have an attached garage, so that is an important consideration as well.

The industry tends to think of horizontal multifamily as attracting the same tenant base as a traditional garden-style or mid-rise multifamily project, but there are actually some important differences. One example is if the tenant has a dog, they will greatly prefer the option that allows them to let Fido out on the lawn (however small the yard might be) rather than going through the corridors of a multifamily building to get outside. Tip: add a doggy door to your homes, which renters won’t be able to have in an apartment.

The Mixed-Product Community
Most of the projects so far have been one of the above, but a few have a combination of unit types. This has the advantage of broadening your potential audience, although blending them skillfully presents special architectural and design challenges.

It’s about to be absolutely essential that you choose your product and your consumer segment wisely. This is the best way to avoid a traffic jam in two to three years, with all the new competition coming in. Differentiate enough, and you’ll be less affected by rising waves of competition.

Brad Hunter is a housing market economist with 35 years’ experience preparing market studies on BFR and for-sale opportunities. His company is Hunter Housing Economics. He will also be a speaker at the IBSx conference in February.