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Build-for-rent communities are growing across the United States as home prices remain high

Build-for-rent communities are growing across the United States as home prices remain high

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  • Build-for-rent communities have taken off as more Americans find themselves unable to afford a down payment for a home.
  • An estimated 97,000 residential rental homes were completed in 2023, an increase of 45% from the previous year.
  • Build-to-rent remains a relative niche, accounting for an estimated 7.9% of all single-family housing starts in 2023.

Richard Bilott’s new home checks almost every box on his wish list.

He shares a spacious four-bedroom, 3.5-bathroom home in Montgomery, Texas, with his fiancée and two huskies, Leto and Ryder. Their equipment is new, the neighborhood is friendly, and he loves watching the wildlife at the local lake.

The only thing missing? He rents the house instead of owning it.

Pilot, 46, She is part of a growing subset of Americans who live in “build-to-rent” communities — neighborhoods designed for renters.

While renting may not achieve the typical “American Dream” of homeownership, experts say these communities can help address the severe housing shortage that has exacerbated the problem. An estimated two-thirds of Americans They struggle to find affordable housing in their area, according to a July YouGov survey of 1,000 US residents.

He told USA TODAY that the house Belote moved into last November is “a wonderful temporary stop-gap.” “This is a distance between where I want to be and where I need to be.”

A new American dream?

Built-to-rent communities have served seniors for decades. However, in recent years, developers have targeted these projects for younger renters who can’t afford to own property yet but want to upgrade from apartments.

In 2023, builders completed an estimated 97,000 build-to-rent residential homes – including those outside build-to-rent communities – a 45% increase on the previous year and a record for the sector, according to John Burns Research estimates. and Consulting, which provides independent research on the U.S. housing industry.

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Real estate remains a relatively niche sector of the housing market, They make up a record 7.9% of all single-family housing starts In 2023, according to Arbor Realty Trust, a real estate investment firm. However, some experts view any addition to the housing supply – including more rental properties – as a positive, especially when homeownership remains out of reach for many.

Renting is now less expensive than owning a home in nearly 90% of U.S. counties, according to a January report by the research firm. Atom Data Solutions. Factors that make a purchase elusive? The 30-year mortgage rate is steady at around 7% and home prices are rising. The Standard & Poor’s CoreLogic Case-Shiller Index of US National Home Prices showed An increase of 6.5% in March From the previous year – the sixth highest record level for the index in the past 12 months.

“For many, renting is the only affordable option,” he said. Susan Wachter, Professor of Real Estate at the Wharton School of the University of Pennsylvania.

Why choose build to rent?

Built-for-rent communities give renters more living options and offer upgraded appliances, community events and amenities such as dog parks and walking trails. Renting may not allow them to build equity, but some renters view it as a starting point for a down payment on a home.

“The goal was to get in here… get all the ducks in a row, and then spend the year… trying to get into a house,” Bilott said. “We’ll cross our fingers for interest rates to come down to something a little more manageable.”

Build-to-rent is also attractive to institutional investors and builders who own and maintain these communities.

Institutional investors have turned to buying single-family homes to rent out, initially targeting foreclosed sales and other distressed sales in the wake of the Great Recession. But the practice has become more difficult amid increasing competition from potential buyers and backlash from lawmakers, who want to prevent investors from outbidding ordinary Americans.

Many communities target young families looking for extra space for pets or children, offering larger yards, more square footage and perks like on-site maintenance.

The rental community where Bilott lives, located about an hour outside of Houston, Construction is done A dog park, walking trails, playground and pool are available to its members, according to its website. Monthly rents posted on the site start at less than $2,000 for a three-bedroom detached home compared to average monthly housing payments of about $2,500 in metro Houston, according to real estate platform RedFin.

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Alessandra Warren, a construction renter in Atascocita, Texas, moved from a three-bedroom house owned by her brother to a four-bedroom townhouse for rent last year. She now pays about $2,500 in rent, an additional $800 a month compared to her previous home, but she said the extra amenities are worth the money.

“It’s very family-oriented,” she said. “The lake alone is definitely something I enjoy a lot.”

While some build-to-rent communities are marketing to middle-class renters who are stuck renting — the Urban Institute said in 2022 that families with middle or lower incomes can afford the costs. Only 20% of homes In the market Others target higher-income families who choose to rent.

Developer Seneca, a division of Christopher Homes, recently opened its first luxury build-for-rent community, Seneca at Southern Highlands, 15 minutes from the Las Vegas Strip. This community is designed for high-income renters who may not want to tie themselves to one area by purchasing a home, or who are attracted to the low-maintenance lifestyle that comes with renting. Homes cost anywhere from $5,000 to $10,000 per month.

Residents enjoy the perks that come with the community, such as a community garden, maintenance-free private backyards and electrically powered solar panels on every home, said Michael Stohmer, co-founder and president of Seneca. Demand has been high, according to Stoehmer, and Seneca is already planning two more build-for-rent communities further south in Henderson, Nevada.

“The dream is to live in a house. It might not even be hers anymore,” he told USA TODAY. “It takes all the headaches out of homeownership.”

Concerns about build to rent

There have been concerns about the build-to-rent trend. Some concern is it Connect starter homes to rentalsAs reported by The Washington Post in 2022.

Others say more homes aren’t a bad thing at all, and point out that the trend allows investors to build their own rental properties rather than competing with potential residents for homes on the market.

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“It actually helps moderate home prices,” he said. Laurie Goodmanfounder of the Housing Finance Policy Center at the Urban Institute and co-author of Report on the construction sector for rent. It contributes to additional supply, and prevents house prices from rising more than they would otherwise.

With US estimates to be anywhere short in between 1 million dollars And 7 million single-family homesAccording to the source, “more housing is always better.” Albert Saezassociate professor in the Department of Urban Studies and Planning at the Massachusetts Institute of Technology.

The Urban Institute report suggests homebuilders can do more Build easily during times of economic uncertainty, When potential homeowners are more likely to withdraw from the market, they know they can rent or sell the property to an institutional investor.

“If you don’t have that built-to-rent outlet for development. You’re not going to get these developments. They don’t use a pencil,” Saez said.

a map: What does the “least affordable housing market in recent memory” look like in your area?

Will build to rent continue to grow?

While the build-to-rent trend has boomed, new builds may slow in the coming years.

High interest rates have already slowed construction by making borrowing more difficult for developers. Housing starts reached a seasonally adjusted annual rate of 1.36 million in April, according to a report US Census Bureau data. That’s up 6% from March but down about 25% from April 2022 — one month after the Federal Reserve began raising interest rates.

Research and consultancy John Burns expects high completion rates to continue this year as existing projects finish, but says the slowdown in housing starts means new build-to-rent completions should taper off by 2025.

“I’m not sure the share of built rent will decline as a percentage of the total, but you’ll probably see less construction overall,” said Goodman of the Urban Institute.