By Meghan Hall
The single-family rental (SFR) space has been part of the real estate landscape for decades, with tenants historically renting from individual property owners and small investors. However, 2020 has seen the rapid acceleration of a new trend, one which involves increasing numbers of institutional investors and wide-scale development: Build for Rent. Referred to as “BFR,” “BTR,” or “B2R,” among industry players, the build-for-rent is still in its nascency but is expected to revolutionize the single-family rental industry in the coming years as demographic shifts and demand for space increase.
“The build for rent movement is really an extension of a larger trend in the single-family rental home market,” explained David Howard, executive director of the National Rental Home Council. “When people think of renting, they typically think apartment buildings, but the reality is that there are actually more single-family rental homes than there are multifamily.”
Within the industry, SFR is typically defined as a single-family detached or attached home available for rent. While walls can be shared, homes cannot be stacked, like multifamily communities or apartments. BFR is considered a subset of the SFR industry, and refers to a neighborhood or community of homes that has been specifically built for the purpose of renting.
“It’s actually a relatively new phenomenon,” said Howard. “People have been building and renting homes for a long time on a one-off basis. What I think we’re seeing that is new is this idea of developing whole communities that are for rent…I think you’ll see that trend continue because what it comes down to is this supply and demand imbalance that exists in the housing market.”
According to Howard, of the 43 million rental units in the country, about 23 million are single-family rentals, which does also include homes in the build for rent sector. In 2020 in particular, there has been a surge in interest for BFR product, as conditions caused by the current pandemic have accelerated demand for single-family rentals, while supply has lagged behind.
“We’ve seen a number of families and individuals who have been living in urban environments, high-rise situations or apartment buildings that have realized because they are going to be working from home or schooling from home, that perhaps now is an opportunity for them to consider housing that provides more space, might be a little more suburban, more access to parks,” noted Howard. “Additionally, part of the reason there is so much demand for SFR and BRF, is there is a noticeable demand for housing in this country; there just aren’t enough homes for people who want to purchase, and that contributes to growth in demand for single-family rentals.”
In particular, two demographic groups are driving demand for SFR: young millennials who have young families in tow, or seniors and empty nesters, many of whom are moving to be closer to extended family and support networks. More Americans than ever also prefer to rent a home as opposed to buying, a major shift in viewpoint when it comes to the population’s approach to housing.
That third option presents a number of perks for both tenants and developers. For tenants, BFR provides a brand-new home, amenities and flexibility of renting without the responsibility of homeownership. Often, BFR developers will work to include community programming and perks into their developments. And, in markets where many would not necessarily be able to afford a down payment on a house, BFR allows tenants more opportunity to live in a new home without the up-front cost.
“The BFR movement is an interesting way to deal with the supply issue in that essentially what it provides is the flexibility of renting along with access to a new home product, without a lot of the affordability considerations that buying a new home often presents,” said Howard.
On the developer side, single-family rents are rather resilient, with rent growth staying positive even during market corrections. BFR homes also typically lease fairly quickly and can achieve top rents when compared with equivalent-sized apartments or stand-alone SFR properties. High occupancy and lower rates of turnover are also appealing to property owners. Often, large home developers will sell off a portion of a new subdivision to a BFR developer, knowing that with leased properties as a part of community, for-sale housing will also sell more quickly.
Markets in states like Texas and Washington, for example, are primed for BFR due to high levels of employment, mostly affordable land prices and growing populations. Howard believes that moving ahead, as more Americans continue to rent, BFR will become more mainstream on a national level.
“Americans are just becoming more comfortable with the idea of renting,” said Howard. “Historically when people have thought about housing, they have thought about it in terms of buying a home or renting an apartment. Now there is a third option.”