- Build-to-rent communities have taken off as more Americans find themselves unable to afford a down payment on a home.
- An estimated 97,000 built-to-rent residential homes were completed in 2023, an increase of 45% from the previous year.
- Build-to-rent remains relatively niche, accounting for approximately 7.9% of all single-family housing starts in 2023.
Richard Belote’s new home ticks almost every box on his wish list.
He shares a spacious four-bedroom, 3.5-bathroom home in Montgomery, Texas, with his fiancée and their two huskies, Leto and Ryder. Their appliances are new, the neighborhood is friendly, and he loves watching the wildlife at the local lake.
The only thing missing? He rents the house instead of owning it.
Belote, 46, is part of a growing subset of Americans living in “built-to-rent” communities – neighborhoods designed for renters.
Even though renting doesn’t meet the typical “American dream” of homeownership, experts say these communities could help solve a severe housing shortage that has contributed to about two-thirds of Americans having to struggling to find affordable housing in their area, according to a July survey. of 1,000 US citizens from YouGov.
The house Belote moved into last November is “a fantastic stopgap,” he told USA TODAY. “It’s a space between where I want to be and where I need to be. »
A new American dream?
Built-to-rent communities have served older populations for decades. In recent years, however, developers have targeted these projects at young renters who cannot yet afford homeownership but want to move from one apartment to another.
In 2023, builders completed approximately 97,000 residential rental homes – including those located outside of build-to-rent communities – an increase of 45% from the previous year and a record for the industry, according to John Burns Research estimates. and Consulting, which provides independent research on the U.S. real estate industry.
Homesteads remain a relatively niche sector in the housing market, accounting for a record 7.9% of all single-family housing starts in 2023, according to Arbor Realty Trust, a real estate investment trust. Still, some experts view any addition to the housing supply – including more rental properties – as a positive, especially when homeownership remains out of reach for many.
Renting is now more affordable than owning a home in nearly 90% of U.S. counties, according to a January report from research firm ATTOM Data Solutions. Factors that make the purchase out of reach? A 30-year mortgage rate that remains around 7% and a surge in real estate prices. The S&P CoreLogic Case-Shiller U.S. National Home Price Index posted a 6.5% increase in March from a year earlier, the index’s sixth record in the past 12 months .
“For many, renting is simply the only affordable option,” Susan Wachter said., professor of real estate at the Wharton School of the University of Pennsylvania.
Why choose build to rent?
Built-to-rent communities give renters more living options and feature upgraded appliances, community events, and amenities such as dog parks and walking trails. Renting may not allow them to build equity, but some renters see it as a stepping stone to a down payment on a home.
“The goal was to get here…gather all our ducks, and then spend the year…trying to get into a house,” Belote said. “We’ll keep our fingers crossed that interest rates come down to a somewhat more manageable level.”
Build-to-rent is also attractive to institutional investors and builders who own and maintain these communities.
Institutional investors began buying up single-family homes to rent, initially targeting foreclosed and other distressed sales in the aftermath of the Great Recession. But the practice has become more difficult due to growing competition from potential buyers and backlash from lawmakers, who want to prevent investors from outbidding ordinary Americans.
Many communities target young families looking for additional space for pets or children, offering large yards, more square footage and perks such as on-site maintenance.
The build-to-rent community where Belote lives, located about an hour outside Houston, is building a dog park, walking trails, a playground and a pool for its members, according to its website. Monthly rents listed on the site start at less than $2,000 for a three-bedroom self-contained apartment, compared to a median monthly housing payment of around $2,500 in the Houston metro area, according to real estate platform RedFin.
Alessandra Warren, a tenant for rent in Atascocita, Texas, moved last year from a three-bedroom house owned by her brother to a four-bedroom townhouse for rent. She now pays about $2,500 in rent, or $800 more per month than where she lived before, but she says the extra amenities are worth it.
“It’s very family oriented,” she said. “The lagoon alone is something I really enjoy.”
While some build-to-rent communities cater to middle-class renters who are stuck renting, the Urban Institute said in 2022, households earning median income or less could only afford 20% of housing on the market. – others target higher-income households choosing to rent.
Developer Seneca, a division of Christopher Homes, recently opened its first luxury build-to-rent community, “Seneca at Southern Highlands,” 15 minutes from the Las Vegas Strip. The community is designed for high-income renters who may not want to tie themselves to a single neighborhood by purchasing a home, or who are attracted to the low-maintenance lifestyle that renting brings. Homes cost between $5,000 and $10,000 per month.
Seneca co-founder and president Michael Stuhmer said residents enjoy the benefits the community offers, like the community garden, maintenance-free private yards and Tesla-powered solar panels on every home. Demand has been high, according to Stuhmer, and Seneca is already planning two more communities to lease further south, in Henderson, Nevada.
“The dream is to live in a house. It may not be about not owning it anymore,” he told USA TODAY. “It takes all the headaches out of homeownership.”
Concerns About Build to Rent
The trend towards build-to-rent has raised concerns. Some fear it will replace entry-level homes with rentals, as the Washington Post reported in 2022.
Others say more housing is never a bad thing and point out that the trend allows investors to build their own rental properties instead of competing with potential residents for homes on the market.
“It actually helps moderate housing prices,” said Laurie Goodman, founder of the Urban Institute’s Housing Finance Policy Center and co-author of a report on the build-to-rent industry. “This contributes to additional supply and prevents house prices from rising more than they otherwise would have.
While the United States is estimated to lack between 1 and 7 million single-family homes, depending on sources, “more housing is always better,” according to Albert Saiz, associate professor in the Department of Studies and of urban planning at the Massachusetts Institute of Technology. .
The Urban Institute report notes that homebuilders can more easily build during times of economic uncertainty, when potential homeowners are more likely to withdraw from the market if they know they can rent the properties or sell them to an institutional investor.
“If you didn’t have this built-to-rent outlet for development. you wouldn’t want these developments to happen. They just don’t pencil,” Saiz said.
Map:What does “the least affordable housing market in recent memory” look like in your area?
Will build-to-rent continue to grow?
Although the build-to-rent trend is booming, new construction could slow down in the coming years.
Rising interest rates have already slowed construction by making it harder for developers to borrow. Residential construction starts reached a seasonally adjusted annual rate of 1.36 million in April, according to U.S. Census Bureau data. That’s up 6% from March, but down about 25% from April 2022, a month after the Federal Reserve began raising interest rates.
John Burns Research and Consulting expects high completion rates to continue this year as current projects wrap up, but says slowing housing starts means completions of new homes built for the rentals are expected to slow by 2025.
“I’m not sure the share of rent built as a percentage of the total is going down, but you’ll probably see less construction overall,” said the Urban Institute’s Goodman.