Can Build-to-Rent help ease the housing shortage?
Over the past two years, people have begun to migrate from densely populated metropolitan areas to less crowded suburbs in search of more space and privacy in single-family homes. This migration has caused the housing market to explode, causing prices to skyrocket and housing shortages to be more pronounced than ever.
Competition to buy the American Dream has undoubtedly become fierce, so renters now find themselves at a crossroads; should they keep looking for the "perfect" home, or should they rent?
For some, the answer is clear, renting is the best option right now. However, despite not being able to buy a new home, renters can still get the extra space they seek by renting in build-to-rent communities. These communities have sprung up across the country like wildfires, offering tenants everything they want, minus the mortgage. In the face of such a competitive market, lack of available homes and rising interest rates, we are exploring how building rental communities can be a possible solution to the current housing situation.
Rent vs. Own Decisions
Affordability has become a concern for renters as prices have continued to soar over the past year. The competition right now is unique, as bidding wars ensue, with homes listed for contracts within days of being listed.
While rental prices have followed suit, renting still appears to be the more affordable option in many markets. While many renters think it's just a temporary home, the data shows that residents of single-family homes tend to be renting for longer than expected. This should come as no surprise, as these build-to-rent communities have the same amenities as multifamily homes, but with the comforts of actual homes. Searches for single-family homes for rent tripled in 2021 compared to the previous year.
Build-to-Rent is gaining popularity
While building rental communities is an attractive option for renters, they are also an attractive opportunity for investors and builders. Especially when building a brand new community from scratch. Doing so is often cheaper and less hassle than buying an already built home. Beyond that, there are several other key reasons why investors are looking for opportunities:
- Has capital: In 2017, Fannie Mae provided a 10-year, $1 billion loan to the largest single-family rental operator in the U.S. Build community with support. The deal is the first of its kind in the single-family residential rental market, as it is the first time a government-sponsored enterprise (GSE) has provided financing for a large institutional operator in the market.
- Potential for strong ROI: Building these communities allows investors to attract tenants who may have longer leases. It ensures a steady stream of revenue, enabling expansion over time. This investment is also an easier way to take over buying a previously built home. Overall, the return on investment from build-to-rent communities tends to be higher than for multifamily portfolios
- There are opportunities for even smaller investors: In the US, real estate financing is not limited to the "big players." There is room for the little ones too. Having ready access to financing means smaller investors and builders can also get involved in building their "build-to-rent" communities. Ultimately, this will ultimately create more homes to help meet the current market demand.
Also, the risks associated with these types of assets appear to be less. Maintenance costs tend to be cheaper and more predictable than multifamily spaces. Since homes are generally more spacious, they tend to attract more mature residents, especially those with three to four bedrooms. Attracting these residents generally reduces the risk of damage because they typically maintain their homes as they would their own.
Building the future of rental
Based on current housing market trends, this year is expected to be one of the best years to build-to-rent. Construction of rental homes accounted for 5.4% of the overall housing market in the third quarter of last year, but that number is expected to double by 2024.
While 2021 proved to be a strong year for the market, with 6,740 new rental homes built, 2022 is only expected to surpass that number. Currently, this year's new rental housing supply is expected to see 14,000 new homes planned for occupancy. That's more than double last year's stock!
More money means more supply, and more supply means more opportunity for many Americans who are looking for affordable single-family homes. While demand still outstrips supply, this growth could certainly provide a great option for those looking for a single-family home.
Create a modern living experience
In addition to the shift to single-family homes, renters have higher expectations for rent. They're looking for fully integrated smart homes that basically make their lives easier from the moment they step into a new neighborhood. Built by experienced operators in the industry, airEkey effectively allows owners to build smart ecosystems within their communities - not just homes.
Our premium equipment creates a modern living experience for residents from the moment they arrive. From smart locks that can be opened remotely to smart thermostats and integration with voice assistants - we help build a fully integrated home with modern elements. Residents can even control each of their devices from the palm of their hand using the airEkey App. Here, they can create automations to simplify their daily activities and provide them with a modern living experience. If residents have any questions, they can always contact our 24/7 customer support team for assistance.
It's never too early or too late to develop your smart home strategy. Whether you've just broken ground or have already started renting out your home, we can create the right plan for you.