Dear Consultant: Will BTR Rent Growth Outpace Apartment Rent Growth Over Time?

by Reid Randall

While the answer may vary by market and product type, dynamics typically favor build-to-rent (BTR) rent growth.?

• Supply: Ample apartment supply creates more direct competition, making it harder to increase rents. BTR supply remains muted in comparison, allowing operators to increase rents more rapidly than the apartment market.
• Price: Despite the higher BTR rents (compared to apartments), homeownership costs are at an all-time high, with for-sale housing costs for entry-level homes? 55% above BTR rents nationally.
• Tenants: BTR tenants tend to be “stickier” than apartment tenants. Factors such as family and job stability lead BTR tenants to be less price-sensitive and less willing to move.

BTR’s unique position in a sea of apartments

The relative supply of apartments compared to BTR communities is enormous. Putting upward pressure on apartments’ prices requires more demand than it does for BTR. While recent BTR completions reached an all-time high of 93K in 2023, they remain a fraction of apartment completions (430K).

BTR supply pressures are contained in just a few markets, and most markets still have a relatively small incoming supply. For example, in Indianapolis, approximately 7.5K apartments are under construction compared to 300 BTR units (this does not include planned and prospective units, which account for several thousand additional units for apartments and BTR).

Generating demand for 7.5K apartment units compared to 300 BTR units is more difficult. This discrepancy highlights BTR’s distinct competitive advantage due to the small supply and the appeal to higher-income earners who seek more privacy (and probably have a dog).

The BTR solution: attainable living in a high-cost housing market

For-sale housing costs for entry-level homes are 55% above BTR rents nationally, up from 10% in 2021. For example, in Austin, the average BTR rent is $2,529, while the average monthly payment plus maintenance costs for an entry-level home in the same area is $4,296 (a 70% premium to own).

According to our BTR Tenant Survey (conducted by our New Home Trends Institute), high home prices, high mortgage rates, and high upfront costs are the top 3 factors stopping BTR tenants who want to be homeowners from purchasing a home. 73% of BTR tenants would prefer to own their home.

Even if mortgage rates were to drop, increasing home prices and upfront costs for a down payment would continue to drive households to rent in BTR communities.

BTR tenants stay longer: demographics and preferences

BTR tenants typically span different life stages: young singles/couples comprise just over 30% of tenants, while young families, mature families, and mature singles/couples each comprise over 20%. Tenants with children are more reluctant to move because of school considerations. Older tenants are less willing to go through the hassle of moving, making them more likely to stay longer once they move in. Among young singles/couples in BTR, 45% have a household income over $100K. Their higher incomes make them less price-sensitive than apartment renters of the same demographic.

Tenants who rent BTR because they don’t want apartment-style living are more likely to stay until they purchase a home. In contrast, apartment renters skew toward young singles and couples, who are typically more mobile in life and work and will often shop around for the best deal every year.

The BTR industry is just getting started. Despite an influx in near-term supply in some markets, demographic growth and cost considerations will drive up BTR rents faster than apartment rents over the long term.

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