An emerging force within the housing landscape, the build-to-rent (BTR) sector has experienced remarkable growth in recent years.1
This innovative approach to housing generally focuses on constructing residential properties explicitly for long-term rental. In general, BTR properties seek to offer the community feel, amenities, and professional management associated with multifamily properties, while also providing the space, privacy, and long-term stability more commonly found in single-family rentals.
Here we highlight four key trends driving demand for BTR developments:
Trend #1: Rising Interest Rates & Cost of Homeownership
The rising cost of homeownership, coupled with higher interest rates, is fueling growth in the BTR sector. Higher mortgage rates are one of the primary factors increasing homeowner monthly payments, and dampening demand for for-sale housing as prospective buyers opt for rentals.2
We believe BTR could be an attractive housing alternative for the growing population of renters who are being priced out of homeownership.2
Source: California Association of Realtors. C.A.R.’s First-Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in the United States. Data through March 2023.
For illustrative purposes only.
Trend #2: Capital Flows into BTR
As a growing number of institutions expand their investment strategies to include BTR, capital flows into BTR product are increasing significantly. These institutional investors have committed over $50 billion in recent years.3
However, there is limited supply of new BTR developments to meet this demand, creating the potential for dry powder to provide ongoing demand for future exits.4
Note: excludes $9B with unidentified start date of venture. Source: Freedom Venture Investments.
Latest data available as of May 2023. For illustrative purposes only.
Trend #3: Shifting Demographics
One of the primary demographic groups driving the demand for BTR housing is Millennials, now the largest segment of the U.S. population.1
As they've come of age in a post-recession era marked by financial uncertainty, many Millennials are choosing to rent rather than buy homes for flexibility and convenience.1 BTR properties, with their tenant-centric designs and modern amenities, may appeal directly to this demographic.
Because Millennials are now reaching peak family formation years, the appeal of more space and targeting particular school districts are driving demand for build-to-rent.1 BTR developments that cater to families with features like playgrounds and larger unit sizes, are potentially poised to benefit from this trend.
Trend #4: Work from Home
The rise of remote work, accelerated by the COVID-19 pandemic, is another demographic shift we believe is influencing the BTR sector.
With more people working from home, there's growing demand for rental properties with the extra space and layout to accommodate home offices. Some BTR properties are responding to this trend by incorporating flexible spaces that can be used for work.
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- Source: https://www.forbes.com/sites/forbesbusinesscouncil/2022/03/24/build-to-rent-primed-for-explosive-growth-in-2022/?sh=3dd3b9f30d8b
- Source: https://nationalmortgageprofessional.com/news/higher-mortgage-rates-dampening-potential-home-sales
- Source: Freedom Venture Investments
- Source: https://urbanland.uli.org/public/build-to-rent-projects-weathering-higher-interest-rates-shifting-strategies/
This communication is for informational purposes only and should not be regarded as a recommendation, an offer to sell securities, or a solicitation of an offer to buy any investment products, financial products, or services. Investment opportunities available through CrowdStreet are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.
Market volatility or lack of liquidity could impair an investment’s profitability or result in losses. Factors such as high vacancy, oversupply of the product in the market, increase in interest rates for borrowing loans, bad credit quality of tenants occupying the property, general economic risks such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and general overall deterioration of the market in which the asset sits, all of which could lead to financial difficulties and impact net operating income and can depreciate the value of the property. These factors, in addition to others including increases in the costs in excess of the budgeted costs, the burdens of ownership of real property, environmental liabilities, contingent liabilities on disposition of assets acts of God, pandemics and other national, regional or local emergency conditions, terrorist attacks, and war may affect the level and volatility of asset prices and the liquidity of investment assets.
In addition to more general risks such as high vacancy rates, oversupply of product in the market, and credit quality of tenants, some of the factors that can impact the success or failure of build-to-rent investments include competition from single-family homes, fluctuations in the average occupancy rate, and increases in mortgage rates that can make debt-financing more expensive.