Building for Rent is a Post-Pandemic Trend to Watch

There is a continued demand for new homes built specifically as rental properties

By David Howard

Perhaps the biggest question facing the housing market entering the summer months is where are things heading? To some degree this is nothing new as forecasters have been trying to figure out the direction of the housing market for as long as anyone can remember, but given the global economic disruption caused by the COVID-19 crisis, any attempt to predict the impact on today’s housing market is especially difficult.

One notable trend gaining momentum prior to the outbreak of the COVID-19 crisis that many housing market observers expect to continue, and perhaps accelerate, is the growing demand for single-family rental homes. Of the 43 million renter households in the United States, more than half—23 million—reside in single-family rental homes of four or fewer units. And the market is expanding. According to survey data from the National Rental Home Council, in 2016, 40% of millennials between the ages of 23 and 38 desired to own their own home; by 2019 that percentage had fallen to 18%. For survey participants in older age cohorts—namely Gen X and Baby Boomer generations—the falloff was similar. According to the survey, reasons for the declining interest in owning a home include: a lack of flexibility related to changing employment circumstances; onerous transaction fees and down payment requirements; reduced tax benefits; and worries about ongoing home maintenance and property management.

At the same time, renters remain drawn to many of the benefits offered by a single-family home lifestyle: proximity to schools and related extracurricular activities for children; ready access to retail and dining experiences; and a wider range of community benefits and amenities. Families with children overwhelmingly prefer single-family rental homes to apartments, and increasingly, seniors and new empty-nesters are seeking the comforts of a single-family rental home, typically near adult children and grandchildren. Many single-family rental home companies offer the convenience of around-the-clock specialized customer care and professional property management services.

A particularly interesting trend in the single-family rental home market is the continued demand for new homes built specifically as rental properties. On their own or in partnership with some of the nation’s largest legacy home builders like Taylor Morrison and Toll Brothers, owner-operators of single-family rental homes are increasingly turning to building new housing units as a way of bolstering their rental portfolios. According to one recent estimate, approximately one in every 20 new single-family homes between the second quarter of 2018 and the second quarter of 2019 was built-to-rent.

Like any emerging sector, there are a diverse array of strategies and models within the build-to-rent sector. Some operators are supplementing existing portfolios of single-family rental homes homes, while others — like NexMetro and AHV Communities — are pursuing build-to-rent as a standalone business model. Many build-to-rent communities offer popular amenities like a pool and a gated entrance, while some even provide perks more typically associated with apartment buildings, like fitness centers and car charging stations.

While it’s too early to tell what the impact on the rental housing market will be as a result of the COVID-19 crisis, expectations are that demand for single-family rental homes will grow. A recent segment on CNBC included predictions from leading investment professionals that the market for single-family rental homes would continue to grow as apartment renters in urban locations flee cities for the safety and security of the suburbs. Single-family rental homes are well-positioned to offer the conveniences and comforts sought after by these renters as they transition to suburban communities.

For those renters forced to work from home during the COVID-19 crisis many discovered they could be productive working from a home office. This realization will likely weigh favorably on apartment renters’ decisions to relocate to a larger home in the suburbs. Again, single-family rental homes have much to offer these renters. Over 65% of single-family rental homes contain three or more bedrooms as opposed to only 11% of apartments. For renters seeking more space to accommodate the potential for an expanded home office, single-family rental homes provide a natural option.

Anticipating the future of the housing market in the age of COVID-19 is a difficult business, but forecasters would do well to watch developments in the market for single-family rental homes.