By Anna Bahney
July 14, 2023
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America is in the middle of a housing crisis.
America is in the middle of a housing crisis. There are only 1.08 million existing homes on the market, and the affordability of a single-family home is at its lowest level in several decades. One bid to close the estimated 3.8 million unit deficit in housing is by building new, single-family homes — but some are not for sale, they’re for rent.
This relatively new and growing segment of the housing market is called “build for rent” or BFR (or “build to rent” or BTR). Often constructed in suburban areas with low crime and near good schools, BFR homes attract those who want the lifestyle of a house — but the affordability or convenience of renting.
With an average rent of a BFR home at $2,039 a month, BFR properties are located mainly in the Sun Belt, including Texas, California, Arizona, Florida, North Carolina and Georgia, according to data from the National Rental Home Council and Yardi Matrix.
“What is driving the growth of BFR is the affordability problem,” said David Howard, CEO of the National Rental Home Council, a nonprofit organization that advocates for the single-family rental home industry. “With interest rates at levels we haven’t seen in years, housing affordability continues to be a challenge for many families. People are waiting for interest rates to come down. There is an appeal and broad-based demand to live in a single-family home, even as a renter.”
While BFR may help boost the critically low supply of housing and cater to lifestyle trends, the roughly 131,000 BFR homes in the United States are a drop in the bucket of the supply shortage, and these rentals may not help the market where it is urgently needed — at the most affordable level — according to a recent report from the Urban Institute.
“What has happened is that a lot of folks are looking at newly built single-family rental homes in the same way as the starter home market,” said Howard. “Build for rent is providing an on-ramp to home ownership. They’ll stay there for two or three years, then purchase a home.”
What is BFR and who lives there?
Build for rent communities might have more in common with an apartment building than the typical single-family rental, said Ben Miller, CEO of Fundrise, which owns and operates 50 build for rent communities with 5,000 units and is in the process of building 6,000 more.
“When people think of build for rent, they think of a house,” Miller said. “But that house is in a community of 100 to 200 homes. You want it to be like a multifamily apartment building: People like having a fitness center, pool and amenities, but with space for their kids and pets.”
The single-family rental segment of the housing market is dominated by “mom-and-pop” investors, some of whom own as many as two dozen homes or just a few properties.
Over the past few years, however, large investment groups — like Home Partners of America or Invitation Homes — have gotten into buying up existing single-family homes to rent. This ramped up significantly during the pandemic as the value of real estate escalated.
Some communities became concerned about the increasing share of entry-level housing stock that was being taken out of the purchase market and turned into single family rentals, further limiting supply and running up prices.
Research from the Urban Institute shows that while the average single-family rental home was built in 1979 and is scattered throughout a community, BFR homes are newly built in a planned community of dozens of single-family rental homes that may look indistinguishable from a neighborhood of new construction homes for sale. Rather than being sold to homeowners, BFR properties are typically owned and operated by builders, institutional investors or partnerships of the two.
Miller said demand for BFR homes is strong and suits a modern way of living involving remote work, lifestyle moves and delayed homeownership.
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