Over the past decade, the build-to-rent (BTR) housing market has experienced a significant surge, doubling its footprint within the single-family construction landscape. This growth comes as developers aim to satisfy a rising demand driven by elevated mortgage rates and a scarcity of for-sale homes, which have rendered property ownership increasingly unattainable for many prospective buyers.
Data from the U.S. Census Bureau, analyzed by the National Association of Home Builders (NAHB), reveals that approximately 18,000 single-family build-for-rent units broke ground in the first quarter of this year. This figure marks a 20% increase compared to the same period in 2023. The trend over the past year has been similarly robust, with construction commencing on 80,000 build-to-rent houses over the last four quarters ending in March. This represents a nearly 16% rise from the prior four-quarter period, which saw 69,000 starts.
The rise of the build-to-rent sector is particularly noteworthy when looking at its growth relative to overall single-family construction. In 2014, BTR homes constituted a mere 3.29% of all single-family housing starts, with only 4,000 units initiated in the first quarter of that year. Fast forward to recent years, and the market share has surged to around 8%, effectively doubling its presence in the industry.
Robert Dietz, the chief economist at NAHB, highlighted the sector's expansion in an analysis. “While the market share of homes is small, it has expanded,” Dietz stated. “Given affordability challenges in the for-sale market, the [single-family build-to-rent] market will likely retain an elevated market share.” His insights underscore the sustained demand for rental homes amidst economic pressures that deter potential homeowners from purchasing.
However, the journey has not been entirely smooth. The past few months have seen a softening in investor demand, influenced by persistently high interest rates. This has led to a slight dip in the BTR market’s share of all single-family starts, decreasing from a peak of 7.96% in the final quarter of 2023 to 7.84% currently. Additionally, total starts have declined by approximately 4,000 units on a quarter-over-quarter basis.
Dietz also pointed out a significant caveat in the available data. The Census Bureau’s statistics on build-to-rent starts only account for houses constructed and retained by builders for rental purposes. They exclude those units sold to other parties for rental use. The NAHB estimates that these excluded projects could represent an additional 3% to 5% of all single-family starts, suggesting that the BTR market's true scale might be even larger than the reported figures indicate.
In essence, while the build-to-rent market may represent a small fraction of the overall single-family housing market, its growth trajectory is undeniable. As affordability challenges persist and mortgage rates remain elevated, the appeal of rental housing is likely to sustain this upward trend. The evolving dynamics of this market segment reflect broader shifts in housing demand and underscore the adaptability of developers in meeting the needs of a changing economic landscape.
Comments