Part II of this two-part series focuses on current growth cycle of the single-family rental market.
Build-to-Rent Now Fastest Growing Sector in US Housing Market
New homes built with the express purpose of renting increased +30% from 2019 to 2020. Today, these build-to-rent homes account for approximately 6% of all new homes built. This 6% is forecast to become 12% over the next 10 years.
Increasingly, this sector of the housing market is master-planned, built on tracts, and built on the fringes of “second-tier” cities. This sector appeals to households that either can’t afford to or choose not to spring for a down payment on a single-family home.
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Take a look at the numbers *:
- 108.5M – number of Americans who rent
- 30% – increase in built-to-rent single family homes from 2019 to 2020
- 35% – share of US rentals that single-family homes
- $77,000 – median household income for renters in new single-family rentals in 2018 – median household income for homeowners was $114,000
- 36% – share of families in US in which head of household a renter
- 8% – share of Americans under 35 who own homes
- 19% of renter households have six-figure incomes, up from 12% in 2006
According to Josh E. Hartmann, chief executive of NexMetro Communities, developer of approximately two dozen built-to-rent homes primarily in the American Sun Belt, “ …we found that consumers were drawn to a housing option that combines the best of both worlds (owning and renting): single-family living and no-hassle, maintenance-free leased living.
Up- & Down-Sides to Build-to-Rent Living/Leasing?
For renters, the traditional hassles of homeownership are avoided. Management takes care of roof leaks or broken toilets. Gardeners take care of landscaping and maintenance issues. And for renters who are uncertain about how long they anticipate living in the same place, Norman Miller, professor of real estate finance at the University of San Diego, said, “the transaction costs are just too high to buy.”
The only downside, according to Miller, “…is you’re going to lose out on the investment aspects of homeownership.”
Graf, with LG Fairmont, believes, “This built-to-rent trend will be devastating for young people’s ability to build wealth, as housing is the No. 1 wealth builder.”
For investors and landlords, built-to-rent properties offer higher returns…returns that continue to pay dividends year-over-year. Renters in single-family homes tend to stay longer and lower delinquency rates.
Justin Abdilla, a real estate lawyer, said, “with so many landlords stuck with nonperforming tenants, built-to-rent offers a higher capitalization rate than property development and sales. Why slaughter the sheep when you can shear it?”
Thanks to The New York Times.
*US Census Bureau, National Association of Home Builders, Bloomberg’2019 American Community Survey, Harvard University Joint Center for Housing Studies, Pew Research Center, Wall Street Journal
