Rapid change is a constant in the real estate market, and it can be challenging to know which trends are going to withstand the test of time. One surefire way to determine whether a real estate movement is legitimate is by watching Wall Street activity. Lots of investors are looking at built-to-rent housing development.
Increases in investment and changing market conditions are creating the perfect environment for built-to-rent housing to explode over the next few years as it becomes a common stop on the journey to homeownership for many consumers. This trend really makes a lot of sense.
Between 2022 and 2024, investors are expected to put nearly $40 billion into new built-to-rent developments. As a result, production is forecasted to double — from 100,000 new homes per year to well over 200,000 new homes per year by 2024. Despite this rapid growth, there is still not nearly enough supply to meet the demand, which means there is still a prime investment opportunity.
Built-to-rent housing developments consist of single-family homes that are built to serve as rental units. These subdivisions are often found in the suburbs, and much like an apartment building, they are managed and maintained by a property management group. Many include landscaping services, so you can enjoy a yard without worrying about maintenance. Some plans also include amenities such as centralized fitness centers and swimming pools.
The concept is ideal for young professionals who are ready for more space but are struggling with the affordability of homeownership in today’s market — a problem that is unlikely to resolve any time in the next 5 years.
These affordability challenges are what are really fueling demand and growth in the built-to-rent market. As home prices continue to see unprecedented growth and inflation continues to weigh on household incomes, it’s becoming increasingly difficult for Millennials to fund home purchases during the prime family-building years.
As this population is desperately seeking more space, a nice backyard, a good school district, and a suburban lifestyle, many are still swimming in student loan debt. Despite recent record wage growth, income still drastically trails year-over-year increases in home values. As a result, renting remains the only option for so many. However, they want to rent in those areas with quality school districts, nice restaurants, recreation options, and entertainment.
This is where built-to-rent housing adds tremendous value, and where developers and investors should pay attention. This solution truly meets the needs of the Millennial population as they begin to migrate away from the urban centers in search of security, stability, and community.
It also seems increasingly likely that Millennials with stable incomes will be more willing to pay 20% over the market price for a brand-new home rental as opposed to funding a new home purchase. Built-to-rent housing is also much more suited to long-term renters, so the turnover rate is likely to be much smaller than a traditional apartment unit. Not to mention rental demand is incredibly high and rental vacancies are at a 25-year low.
Homebuyers between the ages of 25 and 40 are in for a few years of macroeconomic volatility and Pandemic-induced market conditions have exacerbated the affordability crisis in America. These factors will continue to challenge the traditional path to homeownership by creating the need for an additional stepping-stone that offers consumers the space and amenities they need to grow and thrive, while they continue to save for a new property.
The demand for built-to-rent housing isn’t going to slow down anytime soon.
