Build-to-Rent: A Look at the Trend Taking Over New Home Construction
By Lindsay Tingler
April 22, 2022
There is a buzz in the home construction industry and it isn’t just the sound of power saws. One topic has everyone talking—build-to-rent (BTR) single-family homes. While not a new area of development in home construction, the activity surrounding it is. With thousands of starts, billions in capital, and demand projected to outpace supply for years, build-to-rent has lots of people paying attention.
Build-to-Rent Is Becoming Big Business
Builders broke ground on nearly 100,000 BTR homes in 2021. According to Hunter Housing Economics’ September 2021 forecast, the number should reach 120,000 in 2022. Between 2023 and 2025, new starts will exceed 485,000. Despite the construction of more than 700,000 new rental homes, demand still will outpace production in five years.
Where the market goes, money follows. Analysts show up to $75 billion in active capital earmarked for BTR projects. That would fund only two years of demand based on current numbers. As a result, an infusion of investment dollars could drive rental home development even higher.
The U.S. currently has 48 million renter households. Homeownership traditionally has been associated with the American Dream. Those who couldn’t afford to own must rent. That thinking no longer applies. High-income earners represented nearly 75% of rental growth between 2010 and 2018. Renting increasingly is a lifestyle choice, rather than just an economic decision, as people explore different locations, amenities, and communities.
Build-to-rent now goes well beyond the standard multi-family apartment complex. With multiple configurations, these homes are as unique as the needs of the renter. Choices include single-family detached houses, cottage apartments, infills, townhomes, and more. That makes these rental homes ideal for retiring Boomers, work-from-anywhere Millennials, and cramped young urbanites. With something for everyone, the five-year projection for new home starts makes perfect sense.
Different Risks Accompany Build-to-Rent Projects
Any construction comes with risks but BTR introduces some unique challenges. While rental homes may be a new favorite for consumers, builders and their insurers recognize the unknown risk factors that come with the new business model. Traditional home sales are guided by consumer protection laws while build-to-rent projects are governed by commercial agreements, a new world for most home builders.
Furthermore, rental properties have historically carried a higher statistical frequency and severity of claims. They change hands more often. Renters also tend to be less invested and proactive on maintenance issues than traditional homeowners. In fact, the average annual capital expenditure per rental unit for property owners is $3,856.
Homebuilders need to avoid frequent and excessive service calls that can erode their profits quickly. However, property managers still need assurance from their builders that certain warranty obligations will be met. Without thoughtful contract language and a solid warranty program, these opposing needs can damage the builder-property manager relationship. It can also lead to issues down the line between property managers and their residents in setting the appropriate expectations regarding repairs and maintenance.
Build-to-Rent Offers Distinct Rewards for Smart Builders
The single-family BTR boom brings with it untested challenges that new and seasoned builders in the space must navigate. However, one product cuts down some of the risk—a home warranty. PWSC offers the nation’s only warranty specifically designed for build-to-rent homes. The warranty covers new home systems and appliances with a $0 deductible, giving builders relief from many first-year service calls and variable costs. With 24/7 access to submit repair requests to a vetted, nationwide network of home service professionals, HomePRO also gives property managers the assurance they need that their residents will receive a timely response.
Adding a warranty is a must for build-to-rent homes because it:
Helps control insurance premiums and fill gaps in coverage.
Covers the most frequent repairs contributing to the nearly $4,000 in annual capital expenditures per unit for property owners.
Creates a more consistent cash flow by making repairs more predictable.
Captures data across properties and units showing trends in defects and claims.
Addresses service issues quickly using high-quality repairs that help prevent renter turnover.
Home construction companies ready to capitalize on the BTR boom need a warranty expert by their side. PWSC saves builders and property managers time and money while keeping renters happy. Discover how PWSC helps build-to-rent projects meet their ROI goals and learn how your company’s can be next.