Can Build-to-Rent help alleviate the housing shortage?

By: Michelle Ramos

Build-to-rent homes are offering renters a great alternative to purchasing a single family, but can they help alleviate the current housing shortage?Build-to-rent homes are offering renters a great alternative to purchasing a single family, but can they help alleviate the current housing shortage?Build-to-rent homes are offering renters a great alternative to purchasing a single family, but can they help alleviate the current housing shortage?Build-to-rent homes are offering renters a great alternative to purchasing a single family, but can they help alleviate the current housing shortage?

Over the last two years, people have begun to migrate out of densely populated metropolitan areas to the less crowded suburbs in search of more space and privacy found in single family homes. This migration has led the real estate market to explode, causing prices to skyrocket, and the housing shortage to become more evident than ever before.

The competition to purchase a slice of the American dream has undoubtedly become very competitive, so renters now find themselves at a crossroads; do they continue their hunt for the 'perfect' home, or should they rent instead?

For some, the answer is clear that renting is the best option at the moment. However, despite not being able to purchase a new home, renters can still have the extra space they’re seeking by renting a home within a build-to-rent community. These communities are popping up like wildfire throughout the country and offer renters everything they were looking for, minus the mortgage. With such a competitive market, lack of available homes, and rising interest rates, we're exploring the ways how build-to-rent communities can be a possible solution to the current housing situation.

The Decision to Rent vs. Own

Affordability has become a concern for renters as prices have continued to soar over the last year. The competition right now is like none other, with listed homes going under contract within days of listing as bidding wars ensue. According to the National Association of Realtors, the median price of a previously occupied home jumped to $353,900 in October of last year, an increase of 13.1 percent from the previous year.

While rent prices have followed suit, renting still seems to be the more affordable option in many markets. Though many renters believe that this will be just a temporary home, data indicates that residents of single family homes tend to have a longer tenancy than expected. And it should be no surprise as these build-to-rent communities feature the same amenities as multifamily complexes but with the comfort of an actual house. Searches for rentable single family homes tripled in 2021 compared to the previous year. Additionally, a recent study by RentCafe revealed that 78 percent of respondents, (all of whom were renters), are interested in communities of single family rentals (build-to-rent).

Build-to-Rent's Rise in Popularity

While build-to-rent communities are an attractive option for renters, they're also an appealing opportunity for investors and builders alike. Especially when it comes to building brand-new communities from the ground up. Doing so is often less expensive and less hassle than purchasing already constructed homes. Aside from that, there are a few other key reasons investors are running towards the opportunity:

  1. There's capital: In 2017, Fannie Mae backed a 10-year, one billion dollar loan for the largest single family rental operator in the U.S. This meant the loan could be sold to investors to build communities with Fannie Mae's backing. This deal was the first of its kind for the single family rentals market, as it was the first time a government-sponsored enterprise (GSE) facilitated financing for a large institutional operator within this market.

  2. There's potential for strong ROI: Building these communities allows investors to attract renters who will likely have longer tenancies. It ensures a steady stream of income that grants the ability to scale over time. The investment is also an easier route to take over purchasing previously built homes. Overall, ROI from build-to-rent communities tends to be higher than that of multifamily portfolios.

  3. There's an opportunity for even smaller investors: In the U.S., financing for real estate isn't just limited to the 'big players'; there's room for the little guy, too. With financing readily available, this means smaller-scale investors and builders can also join in on building their build-to-rent communities. In the end, this ultimately creates more homes to help meet the current market's demands.

Additionally, there seems to be less risk associated with these types of assets. Maintenance costs tend to be less expensive and are much more predictable than in the multifamily space. Since homes are typically more spacious, they tend to attract more mature residents, especially those with three to four bedrooms. Attracting these residents usually reduces the risk of damage as they typically maintain homes as if they were their own.

The Future of Build-to-Rent

Based on trends in the current housing market, this year is projected to be one of the best for build-to-rent. In the third quarter of last year, build-to-rent homes accounted for 5.4 percent of the overall housing market, but the number is expected to double by 2024. According to Hunter Housing Economics projections, investors are getting ready to put down no less than $40 billion into this market over the next 18 months.

While 2021 proved to be a strong year for this market, with 6,740 new build-to-rent homes constructed, 2022 is only expected to surpass that. Currently, this year's supply of new build-to-rent homes is slated with 14,000 new houses scheduled for move-ins. That's more than double last year's inventory!

More funding means more supply, and more supply means more opportunity for so many Americans who are looking for an affordable single-family home. While there still is more demand than there is supply, there is certainly hope that this growth can offer a great alternative to those seeking a single family home.

Building Modern Living Experiences

Apart from the shift to single family homes, renters are also expecting more from their rentals. They're looking for fully integrated smart homes that essentially make their lives easier from the moment they step foot into their new community. Built by seasoned operators within the industry, SmartRent effectively allows owners to build smart ecosystems within their communities - not just the home.

Our premium devices create a modern living experience for residents from the moment they arrive. From smart locks that can be opened remotely to smart thermostats and integrations with voice assistants - we help build a completely integrated home that packs a modern punch. Residents can even control each of their devices from the palm of their hand with the SmartRent resident app. Here, they can create automations that simplify their day-to-day activities offering them a modern living experience. And if a resident ever has a concern, they can always reach out to our 24/7 customer support team for assistance.

It's never too early, or late, to build your smart home strategy. Whether you're just breaking ground or have begun to rent out your homes, we can certainly put together the right plan curated for you.

Interested in learning more? Schedule a quick demo with one of our experts, and they can show you just how SmartRent is revolutionizing the build-to-rent market.