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Renting the American Dream: Build-to-rent communities fill supply shortage amid housing crisis

Apr 25, 2022

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Build-to-Rent: Changing the American Dream?

TAMPA, Fla. — Housing experts describe the hybrid build-to-rent model as "the biggest change in residential real estate that we've seen in our lifetimes." But, what does it mean for single-family homeownership and the future of housing?

NexMetro launched its first community 10 years ago in Arizona. The motto on their website is "rents like an apartment, lives like a home."

And, if anything breaks, it's a rental, so you don't pay for maintenance, and transitioning later on to a product you can buy is off the table.

"This is a for rent only product, okay, so for rent only in perpetuity," William Hulton, Vice President of Development for NexMetro in Florida, said. "And we do not develop this product with that (buying later) in mind. It is intended at the onset and throughout its life to be a full rental product."
Hulton told ABC Action News reporter Michael Paluska that the hybrid model is catching on.
"This is our flagship entry into Florida, and the first in Pasco County, to my knowledge," Hulton said. "And, we have several others in the pipeline within Pasco, Hillsborough, and Manatee. The market is driving the demand for it. And as an alternative, I don't think there's a better alternative for those looking for a different experience than the traditional big box."

In our housing supply crisis, the build-to-rent model fills something housing experts identify as the missing middle.

"And, that is that middle ground between apartments and single-family homes, and there's very little built-in that in-between zone for the past decades," Brad Hunter, the owner of Hunter Housing Economics, said. "So, now we have this new, you know, a 10-year-old segment of real estate that is starting to fill in that missing middle. It's still going to be a much smaller segment of real estate than apartments. But it is going to get up to that level. And, I think that's a good thing. I think it's going to help. It's going to give people more options."

Hunter said his research shows there is a shortage of housing targeting the needs of young families. Millennials are having children now and want a suburban home with a yard. There were an estimated 95,000 homes built for rent last year (nationwide), and BFR communities are leasing up as rapidly as they can be built.

"My forecast is that for the next five years, we're going to continue to see the supply chasing the demand," Hunter said. "I think that will eventually get to around 160,000 to 180,000 per year being produced, which is still only about 40% of all the apartments that are being produced in the country."

As property values reach historic levels, Hillsborough County Property Appraiser Bob Henriquez is trying to raise awareness about the issues we are facing.

"This is a remarkable increase in value. We could use the terms historic and extraordinary," Henriquez said. "I don't know that we've ever seen this, this magnitude of increase in overall property value. What my fear is the most of the average person being squeezed out of, out of what we know is to be, you know, very special community," Henriquez said.

The data is still getting crunched, but Henriquez said on average, values have gone up 20% across the county, in some areas, even higher.

"The ones that are going to be affected the most are new or new homebuyers. Folks that are new construction. And that is passed folks that are renting," Henriquez said.

One central area of concern is homestead exemptions and the 10% non-homestead cap.

Once a home changes ownership or use, the value is assessed without the protections at today's market rate.

"Non homesteaded property investors that have come in and bought some of the market where they wouldn't have been protected by a 10% cap previously, they're going to feel the full brunt of this increase," Henriquez said. "Even if the market were to tank tomorrow, the trim notice that you received this year will be based on the value as it was January 1 of 2022."

While increases in Tampa Bay are pricing some locals out of the market, we remain more affordable than big cities like New York, San Francisco, and Miami. And, Tampa's secret is out.

"It is pretty intense right now. But, you know, I love this region. I love the Tampa Bay region," Nancy Surak, a managing broker for the Land Advisor's Organization in Tampa, said. "I've been saying for decades that when the word got out, the secret got out on our region, that, you know, we wouldn't be able to turn off the demand spigot, and here we are."

Surak said there are bidding wars in all asset classes. The only market she doesn't see demand in is office space. This makes sense as corporations are slow to return to work. One industry Surak also predicts we will grow in is build-to-rent.

"So it's not a new concept. It's a new concept from a development perspective," Surak said. "I don't think it will be a displacement of the single-family home. I think it's an alternative to folks who have traditionally been serviced in the apartment rental space. A number of people want to put this in the bucket of its direct competition with the home builder, and with the home consumer. So I go back to it's just another product type. And if demand is there, the market will solve the problem of demand, and that's really where we're at."
"Are we heading towards prices inflation so high that we have to now rent the American dream as opposed to buy?" Paluska asked.
"I think the better question is, does this next generation, what my generation and people older than me have defined as the American Dream, think the American Dream is being redefined by this younger group of people who maybe don't want what mom and dad strive so hard to achieve," Surak said. "They want freedom and the ability to be flexible and fluid as to where they live."

Hulton agrees. So, the question now is, is the definition of the American Dream changing.

"Is it about the American dream? Building these homes where people can come in and know that they have a piece of that and not have to worry about all the other stuff that comes with buying?" Paluska asked.
"I think our position is that fundamentally, I think Americans or consumers, in general, have changed the way they view the American Dream to a large extent," Hulton said. "And, you know, that may mean staving off purchasing a home that may be putting off marriage or extending your youth a little longer through the years before they jump into that full commitment of purchasing a home. So this fits a very, very necessary niche in the market."

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