Homeownership has been on the decline for decades, and not only among millennials. House prices have risen at a rate disproportionate to income, making homeownership increasingly unaffordable. Rent too has increased, contributing to Americans’ inability to afford down payments, but remains more affordable than homeownership.
Approximately one in eight, or 16 million, American households live in a single-family rental property right now. The renting of single-family homes is nothing new, but the building of single-family homes for rent is.
What Are Built to Rent Homes?
At present, 6% of new homes built in the United States are built to rent. This figure is expected to double or triple by 2024 in order to meet the nationwide demand. Built-to-rent homes are those 6% of homes built specifically to be rented out by tenants, typically with designated staff for repairs and maintenance. Traditionally, single-family real estate investors would buy a home from a homeowner and then rent out the property to tenants, though small multifamily properties and large apartment buildings have been built to rent for some time now.
Build to rent is one of the fastest-growing sectors of the U.S. housing market, and key players include Toll Brothers, American Homes 4 Rent, Tricon, and NexMetro. Each organization’s approach differs, with some creating communities that mimic traditional suburbia and others building higher-density products geared towards urban dwellers or young commuters. Nevertheless, the underlying structure of these businesses remains the same — build homes for the sole purpose of renting them.
Why Build to Rent is Booming
Whether drawn to the convenience of being a renter or the extra space sans down payment, there are several reasons why the built-to-rent market is taking off. Among those driving this shift in housing habits are millennials starting families, young singles looking for some legroom, and empty nesters interested in reducing maintenance.
Large levels of student debt coupled with high home prices and low incomes prevents homeownership from being an option to many millennials. According to a Unison Home Buyer Survey, 92% of millennials consider homeownership to be a good investment, but only 43% have saved less than $3,000 for a down payment. Despite that, many want to start families — or simply get out of cities and have a yard to call their own, especially after the coronavirus pandemic — and build to rent homes offer a solution to this financial dilemma.
Further, the cultural attitude towards the home is shifting. Owning a home does not have the financial, or sentimental, value that it once did. People, young and old, also appreciate the simplicity and flexibility of renting. Leaving maintenance and troubleshooting to a landlord is a convenience many millennials are unwilling to sacrifice, and baby boomers are looking to gain. The long-term impact of waning homeownership — as well as the future of the suburbs— remains to be seen. One thing is for certain: the built-to-rent model is creating new opportunities for investors, builders and developers, and prospective homebuyers.