Wall Street Continues to Bet on the Build-to-Rent Sector: A Growing Market Amid Sky-High Housing Costs

The Build-to-Rent (BTR) sector is a rapidly expanding niche in the U.S. real estate market, catering to a growing demand for rental homes amid rising mortgage rates and skyrocketing home prices. BTR communities offer single-family homes for rent, providing an alternative for households seeking more space and amenities without the financial burden of ownership. In 2023 there were a record-breaking 27,495 build-to-rent homes completed, up 75% from 2022 and a staggering 307% since pre-pandemic deliveries in 2019. (Globest) (Fox Business)

?Today’s confounding factor is the collapse of single-family affordability, which poses a growing case for BTR homes. In 2021, when mortgage rates were 2.9% and rents averaged $1,670 per month, a buyer could afford a home worth over $500,000, 40% higher than the median-priced home. However, by 2023, with rent rising to $1,800 and mortgage rates exceeding 7%, the same buyer's affordability dropped to around $330,000—15% below the current median-priced home and representing a 34% decrease in purchasing power than just two years ago. (Cushman & Wakefield) (Fast Company)?

While the demand for BTR homes presents increasing demand, the supply is lagging. According to a Forbes report, BTR developments are expected to deliver around 120,000 units annually by the end of 2024. However, the sector faces capital shortages due to a significant capital pullback, with an expected 30-50% decline in housing starts due to tighter lending conditions. The result is a continued undersupply, with developers struggling to meet the pent-up demand in high-growth markets like Phoenix, Dallas, and Atlanta, where occupancy rates are as high as 96-97%.(Forbes) (CBRE)

?Overall, the Build-to-Rent (BTR) market continues to offer significant opportunities for growth. In 2022, rent growth reached 6.6% while vacancy rates remained low at 4.8%, demonstrating strong fundamentals. Despite capital shortages and rising borrowing costs, BTR developments now represent 7% of single-family construction, with over 340,000 units nationwide. Investor interest in BTR has surged, with transaction volumes increasing by 250% over the past two years and over $7.5 billion invested in development. The sector has attracted significant investor interest and is growing as a viable alternative to traditional housing options. As the market matures, BTR is positioned to play a pivotal role in addressing the future housing needs of American renters. (Costar)