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A new American Dream? With home prices out of reach, ‘build-to-rent’ communities take off

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7 months ago

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A new American Dream? With home prices out of reach, ‘build-to-rent’ communities take off

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  • 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 residential homes built to rent were completed in 2023, up 45% from the year prior.
  • Build-to-rent remains relatively niche, making up an estimated 7.9% of all single-family housing starts in 2023.

Richard Belote’s new home checks nearly every box on his wish list.

He shares a spacious four-bedroom, 3.5-bath house 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 home instead of owning it.

Belote, 46, is part of a growing subset of Americans living in “build-to-rent” communities – neighborhoods designed for renters.

While leasing may not fulfill the typical “American Dream” of homeownership, experts say these communities could help address an acute housing shortage that has contributed to an estimated two-thirds of Americans struggling to find affordable housing in their area, according to a July survey of 1,000 U.S. citizens from YouGov.

The home Belote moved into last November is “a fantastic stopgap,” he told USA TODAY. “This is a space between where I want to be and where I have to be.”

A new American Dream?

Build-to-rent communities have served senior populations for decades. In recent years, though, developers have targeted these projects for younger tenants who cannot afford to own yet but want to upgrade from apartments.

In 2023, builders completed an estimated 97,000 build-to-rent residential homes ‒ including those outside of build-to-rent communities ‒ an increase of 45% from the prior year and a record for the sector, according to estimates from John Burns Research and Consulting, which provides independent research on the U.S. housing industry.

The properties remain a relatively niche sector of the housing market, making up a record 7.9% of all single-family housing starts in 2023, according to Arbor Realty Trust, a real estate investment trust company. Even so, some experts view any addition to the housing supply ‒ including more rental properties ‒ as 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 by research firm ATTOM Data Solutions. Factors that put buying out of reach? A 30-year mortgage rate holding steady at around 7% and soaring home prices. The S&P CoreLogic Case-Shiller U.S. National Home Price Index showed a 6.5% rise in March from the year prior ‒ the index’s sixth record high within the last 12 months.

“For many, renting is just the only affordable option,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School.

Why choose build-to-rent?

Build-to-rent communities give renters more living options and offer upgraded appliances, community events and amenities like dog parks and walking trails. Renting may not allow them to build equity, but some renters view it as a stepping stone to a down payment on a home.

“The goal was to get in here … get all of our ducks in a row, and then spend the year … trying to get into a house,” Belote said. “We’ll cross our fingers that interest rates drop down to something a little more manageable.”

Build-to-rent is also appealing to the institutional investors and builders who own and maintain these communities.

Institutional investors have taken to purchasing individual single-family homes to rent out, initially targeting foreclosed and other distressed sales in the aftermath of the Great Recession. But this practice has become more difficult amid rising competition from potential buyers and backlash from lawmakers, who want to stop investors from outbidding everyday Americans.

Many communities target young families looking for additional space for pets or kids, offering large yards, more square footage, and perks like on-site maintenance.

The build-to-rent community where Belote lives, located about an hour outside of Houston, is building a dog park, walking trails, a playground, and a pool for its members, according to its website. Monthly rents posted on the site start at under $2,000 for a detached, three-bedroom compared to the median monthly housing payment of roughly $2,500 in metro Houston, according to real estate platform RedFin.

Alessandra Warren, a build-to-rent tenant in Atascocita, Texas, moved from a three-bedroom home owned by her brother to a four-bedroom build-to-rent townhome last year. She now pays about $2,500 in rent, an extra $800 per month compared to her previous home, but she said the extra amenities are worth the money.

“It’s very family-oriented,” she said. “The lagoon alone is something that I definitely enjoy very much.”

While some build-to-rent communities market to middle-class renters who are stuck renting ‒ the Urban Institute in 2022 said households earning median incomes or less could afford just 20% of homes on the market ‒ others target high-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 tenants who might not want to tie themselves to one area by buying a home, or who are attracted to the low-maintenance lifestyle that comes with renting. The homes cost anywhere from $5,000 to $10,000 per month.

Seneca co-founder and president Michael Stuhmer said residents enjoy the perks that come with the community, like the community garden, maintenance-free private backyards and Tesla-powered solar panels on every home. Demand has been high, according to Stuhmer, and Seneca is already planning two more build-to-rent communities further south in Henderson, Nevada.

“The dream is to live in a home. It might not be to own it anymore,” he told USA TODAY. “It takes out all of the headache of homeownership.”

Concerns around build-to-rent

There have been concerns about the build-to-rent trend. Some worry it is relacing entry-level homes with rentals, as reported by the Washington Post in 2022.

Others say more homes is never a bad thing, and point out that the trend allows investors to build their own properties to rent instead of competing with potential residents for homes on the market.

“It actually helps moderate home prices,” said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute and co-author of a report on the build-to-rent sector. “It’s contributing additional supply, and it’s keeping home prices from going up more than they otherwise would have.”

With the U.S. estimated to be short anywhere between 1 million and 7 million single-family homes, depending on the source, “more housing is always better,” according to Albert Saiz, associate professor at Massachusetts Institute of Technology’s Department of Urban Studies and Planning. 

The Urban Institute report notes that homebuilders can more easily build during times of economic uncertainty, when potential homeowners are more likely to pull back from the market, if they know they can rent out the properties or sell them to an institutional investor.

“If you did not have this built-to-rent outlet for development. you wouldn’t have these developments happen. They just don’t pencil,” Saiz said. 

Map: How does ‘the least affordable housing market in recent memory’ look in your area?

Will build-to-rent keep growing?

While the build-to-rent trend has been booming, new builds may slow in the coming years.

Higher interest rates have already slowed construction by making it more difficult for developers to borrow. Residential construction starts hit 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 roughly 25% from April 2022 ‒ one month after the Federal Reserve started hiking interest rates.

John Burns Research and Consulting expects high completion rates to continue this year as current projects wrap up, but says the slowdown in housing starts means new built-to-rent completions should dampen by 2025. 

“I’m not sure that the share of built rent as a percent of the total goes down, but you’ll probably see less overall construction,” Goodman of the Urban Institute said.

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