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Build-to-rent homes are in the midst of their most productive years on record as more and more Americans remain renters and homeownership becomes harder and harder to attain.
A total of 27,500 build-to-rent houses in the United States were completed in 2023 according to a new report from RentCafe — a 75 percent increase from the previous year. There are 45,400 build-to-rent houses currently under construction, according to the report, spelling out another banner year for the sector.
The report attributes the building boom to a number of factors including hybrid work, millennials reaching homebuying age but being unable to afford homeownership, high renter demand, and interest in rentals from institutional investors. Renters are also drawn to build-t0-rent properties because they tend to be newer construction and have more amenities than typical single-family rentals.
These factors have combined to create an ideal environment for built-to-rent homes, according to the authors of the report.
“Fundamentals are healthy, driven by strong demand for single-family homes while home sales remain weak, and the cost of buying has become prohibitive for many families. The median home mortgage payment is about 40 percent higher than the median rent in the U.S.,” said Doug Ressler a senior analyst and business intelligence manager at Yardi Matrix, the parent company of RentCafe.
The areas with the highest build-to-rent activity in 2023 were markets that have seen large spikes in demand in the post-pandemic landscape. Phoenix led the way with more than 4,000 units completed in 2023, followed by Dallas with 2,694 and Atlanta with 1,981.
Austin and Charlotte rounded out the top 5 with 840 and 714 new build-to-rent units respectively. Texas had the highest build-to-rent activity of the 50 states, with nearly 4,800 build-to-rent houses completed, with the Dallas area accounting for more than half of those.
Texas also leads the nation for build-to-rent units currently under construction, with Dallas and Houston alone accounting for 6,481 and 4,836 units under construction alone, the second and third highest levels of in-progress homes in the nation. Phoenix again is in the number one spot with 7,236 homes under construction.
Nationally, asking rents for build-to-rent units rose $9 to $2,144 in March, according to the report, while year-over-year growth fell to 1.2 percent. Occupancy rates for single-family build-to-rent units fell in February as well, dropping 10 basis points to 95.3.
Developers in the sector face the same challenges as others with the high cost of capital reducing returns for investors, yet distress remains uncommon, according to Ressler.
“The capital side of the equation remains problematic, as the high cost of capital has largely eliminated scattered-site acquisitions and reduced investors’ return expectations,” Ressler said. “Despite that, BTR distress is rare, as occupancy rates and rents are still high.”
