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Built to Rent Housing Market Exploding

February 24, 2022

The Built to Rent Revolution

With rent prices rocketing and demand for housing so intense, the built to rent housing market is seeing even more interest. Being designed for renters, it is a compelling rental product.

Investors are are jumping on the built to rent sector, one that generates demand for both property managers and HOA management companies. A new report from Rentcafe states that a record 6,740 new built-to-rent houses were completed in 2021, and that  14,000 new houses for rent might be ready in 2022.

Las Vegas, Houston, Tucson, and Phoenix currently have the most built for rent housing in the US.  Cities that are adopting built to rent communities at the fastest pace include Phoenix, Columbus, Dallas, Houston, Riverside, Las Vegas and Kansas. Given migration to the south, and availability of land in southwestern cities such as Phoenix, it’s not surprise that more built to rent houses are being built.

They are suburban communities for the most part. HOA management services firms in those cities will have some excellent opportunities in 2022.

The Right Features for Smart Investors

More builders and real estate investors believe built to rent properties have an outstanding ROI due to:

  • excellent demographics including Millennials
  • huge market due to low housing supply and fast rising rent price
  • preference for work home raises demand for houses
  • incoming migrating workers need rental housing
  • cities such as Las Vegas and Phoenix have land to build these communities
  • continued low financing costs
  • managed communities with designer amenities renters want

While the multifamily sector was often built to rent projects too, the new focus is on single family dwellings which are in extreme demand.

From 2009 onward US property investors bought up distressed and foreclosed properties to create residential rental properties. Distressed and foreclosed properties comprised only 2% of the residential real estate market in 2019.

CNBC takes a closer look at the built to rent new construction market.

ERC is a leading build-to-rent (B2R) real estate development company wholesaling mini-neighborhoods of affordable single-family homes. They typically build developments of 20+ units, whereas other larger builders produce projects into the hundreds of units.

Build to Rent Market. Screenshot courtesy of ERC Homes.

Renters Are Choosing to Rent Rather Than Buy

Builders are accommodating the renters, with a big increase in build-to-rent construction. The US rental market has become that it’s drawing away those individual buyers who would otherwise be buying. Renters from Florida to New York to California are desperate for rental accommodation and many will pay big rent prices for homes and townhouses.

Will this draw in more major investment firms and construction firms such as Toll Brothers because they’re suddenly seeing the trend?

The new build to rent product is considered safer and better performing. The fact it doesn’t have to renovated and can be designed to incorporate the latest amenities and features , i.e., technology, that renters demand is no small factor as well. It looks like heaven for property management solutions companies who see the value-added side.

We are investing in the single-family build-to-rent sector,” Toll Brothers CEO Doug Yearly said in a second-quarter earnings call last week. “This is another business we believe has great potential.” — From magazine.realtor/ report.

Toll Brothers and Built to Rent

Big construction firms are getting into Built to Rent including Toll Brothers with their recently announced a $60 million investment in a joint venture with BB Living. They are working initially in Boise Idaho; Dallas Texas,  Denver Colorado, Houston Texas,  Jacksonville Florida, Las Vegas Nevada, and Phoenix Arizona. Another firm, ECR Hombuilders is offering a new IPO, to raise $100 million to build more than 1,000 rental homes in Florida.

Avilla Buffalo Run in Commerce City (Colorado) epitomizes the new build to rent model. Colorado multifamily development is good too, however there’s more land in pricey Colorado for this type of development.  This development in Commerce City is a single-family community built from the ground up entirely for renters and not owners. Its managing director believes maintenance-free lifestyle is more appealing as people age and to baby boomers who would rather rent after selling their homes.

 

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Build to Rent Homes a Big Market

According to National Multifamily Housing Council data, 15 million households, representing 35% of renting households, rent single-family homes rather than multi-unit apartments. Also, one of every four renters of properties newer than 1990 earn household incomes of $75,000 or more.” — from report on Hanleywood.com

NAR ran a report last January that pondered whether entire build to rent communities might be the real trend in the future. Nar believes builders will focus on low-cost markets such as Atlanta and Phoenix where there is also entry-level home building.

The NAR report spoke of two companies into build-to-rent initiatives. One is AHV Communities who developing 175 upscale single-family homes in SFR communities in Austin, Texas. They cited GTIS Partners, based in New York, is also shifting focus from 4200 homes it bought, to new homes.

Hunter Housing and Economics discusses the market in their webinar.

Build to Rent Sweeping the UK

Build to rent is hot in the UK as well. It’s reported that the total number of build-to-rent homes under construction across the UK has increased by nearly 40%. That’s 14,615 completed homes last year with 24,000 more estimated to be completed.

Build To Rent Growth in UK. Screen Capture courtesy of Statista.

In London, Pension fund Public Sector Pension Investment Board and global real estate company QuadReal Property Group are combining to build a new development called Cherry Park. It will be one of London’s largest single-site schemes featuring 1,200 new homes with high end facilities, workspace and public areas within a build-to-rent model.

If multifamily housing development does falter due to weaker demand, it seems the single family build to rent market might grow quickly.  These opportunities take time to take hold and be capitalized on. With big construction companies such as Toll Brothers getting excited about it, it’s hard to ignore.

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