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Build-to-rent housing gaining market share in North Texas

By Bill Hethcock

October 17, 2022

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Roughly 5,000 single-family rental homes will be built in North Texas this year, according to housing analytics and consulting firm Residential Strategies Inc.

Newly built rental homes make up about 9% of all new residential construction in Dallas-Fort Worth, and the product type is a rapidly growing segment of the market here and nationwide, especially across the Sunbelt.

Roughly 5,000 single-family rental homes will be built in North Texas this year, according to Dallas-based housing analytics and consulting firm Residential Strategies Inc.

As the broader DFW and national housing markets continue to decline, build-to-rent homes are filling a significant gap in the housing supply. With sharply higher interest rates and inflation since the beginning of the year, would-be homebuyers are turning to single-family for-lease homes in professionally managed communities as an alternative to apartments.

Additionally, the COVID pandemic has driven renters to seek out accommodations outside of major cities, opting for the suburbs instead, says Bryan Moore, CEO and president of DBA Architects, a McKinney-based architecture, master planning, and interior design firm that has carved a niche for itself in single-family rental home design.

In designing single-family rental homes and communities, Moore and his colleagues at DBA have found that renters are longing for updated housing communities that provide similar amenities associated with apartments. As such, making space for fitness centers, a pool and clubhouse rank high on the priority list, he says.

The ability to work from home has become equally as important in these communities. To accommodate this shift, DBA designers include a home office in the floor plans for the units, and work pods in the clubhouses.

In the interview that follows, Moore spoke to the Dallas Business Journal about market and design trends in the build-to-rent space.

What’s driving the demand for single-family rental homes?

People, especially young people, can't own a house because interest rates are so high and cap rates are so high. Most of these are young, just-married couples or young singles. They can't come up with the down payment, they're tired of living in an apartment, and the biggest driver is they want a backyard for their dog.

What size are the homes DBA is designing?

We're doing anywhere from a 675-square-foot, single-family cottages with no garage all the way up to a 1,500- to 1,600-square-foot, three-bedroom, two-car-garage homes.

What are some of the companies that you’re designing homes and communities for now?

The biggest one right now we're working for is JLM Living out of Austin. We've done work for Third Lake Development out of Florida. We’re doing product for Campus + Main out of Los Angeles, California. We're doing stuff with 360 Real, of Euless.

Where in North Texas are you doing projects?

We’ve got one out in Greenville, one in Arlington and one we’re looking at in Fate. Secondary markets, the suburbs, is where most of these are happening.

How is inflation affecting what you’re doing?

It's a huge factor. With supply chain (issues), inflation, interest rates going up, everybody's scrambling. The numbers still work right now on most of these deals, my clients tell me, but it's quickly getting to the point where they might not work if it keeps increasing.

Build-to-rent single-family homes make up slightly under 10% of all new residential construction in Dallas-Fort Worth. Do you see that percentage rising?

I do see that going up. The construction costs for a single-family home is less than construction costs for a traditional apartment, and they're getting larger rents because they have a backyard and they have a private garage.

With interest rates so high compared to recent history, is that shifting more demand to single-family rentals?

It's several things. It's not just the interest rates, but it's also the the availability of houses to buy and then it's also the down payment. I think the biggest obstacle is the availability. There's just nothing for sale in their price range, and then once they do find something in their price range, the amount that these banks are requiring for down payments, they just don't have it. So it's a combination.

What do people want, design-wise, in their rental houses?

Some of our clients have done focus groups. The No. 1 thing they want is a backyard. They want a backyard for their pets. The No. 2 thing is a private garage. That's very appealing to them. And the No. 3 thing is an allocated space for work-from-home with the COVID pandemic. We're designing in each one of these units studio-type studies so that they can close off a door to have a Zoom backdrop, that kind of thing.

What do these home offices look like?

They're typically about a six-foot by eight-foot space that we usually design in an L-shaped configuration with a built-in L-shaped desk, upper cabinets, and then we typically will put a barn door slider at the entryway so they can close the barn door off and do virtual calls — Zoom and Teams and the other virtual programs. It's just a simple desk with built-in drawers, built-in uppers above it, and all the connections for printer and computer hook up.

What about common amenities like a fitness center and clubhouse?

The big thing in these is they will have your typical traditional freestanding club building that has leasing offices, workspace, toilets for the pool, a game room. Then we've done everything from a virtual golf facility to mini-marts, micro-marts, that are basically a walk-in vending machine. You come home and you don't have any milk, and you can go to the clubhouse. 7-Eleven is big into providing these for these developers. They'll stock it.

Typically we're doing separated fitness centers, so the fitness center will be a freestanding building on its own on the other side of the pool. Then there's a large village green that has play areas and open space for throwing the Frisbee or playing catch or whatever. So it's typically two separate buildings. The clubhouses is around 5,000-6,000 square feet and then the fitness center which has the gaming area in it as well — billiards, foosball and that kind of stuff — is usually around 3,500 square feet. So there's typically around 9,000 square feet of amenity space.

How many homes are in these rental communities?

Anywhere from 250 to 300 units.

And the average unit size?

Overall, it’s around 850 square feet of air-conditioned square footage. About 35% to 40% of those will have garages. Some are single-car garages and some are two-car garages.

What is the biggest challenge you’re facing in single-family rentals right now?

This product is so new that cities don't know what to do with it. There's zoning ordinances that really don't cover it. You typically have to go with your planned-unit development. Then when you're doing a planned-unit development, there all these zoning ordinances and their codes are written for multifamily and then they're written for single-family. So they're like, "Well, you're really a multifamily project, but you're really not." It's a lot of learning as you go before the cities, and we're trying to educate them.

Do you face much opposition from neighbors who worry that it’s too much like a multifamily development?

You have to educate them because they hear “for-rent” and they automatically think it's going to be crime infested, apartment-complex development, and that's just not what we're doing. You have to educate them that this is a very nice project, and although it is multifamily, it's single-family. That's the hardest thing we have to overcome with these.

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