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Institutions Charge into the Build-to-Rent Segment of SFR
The institutionally owned single-family rental market, which arose from the ashes of the 2000s housing bubble, has been revitalized by the COVID-19 pandemic. Yardi Matrix says the revival comes with a new twist: the build-to-rent segment, in which homebuilders develop single-family homes to rent.
“Both the institutional single-family rental and build-to-suit segments gained momentum as a result of the pandemic, which created ideal conditions,” Yardi Matrix says in a new report on the segment. The pandemic and work-from-home gave young families motivation to leave urban apartments and seek out housing with more rooms and yards for children. Yet many families who wanted to live in suburban housing did not have the savings or desire to be homeowners. Some detached-home renters lack the means to qualify for a mortgage; others want the flexibility to move.”
SFRs have long been a major subsection of the housing market, representing about one-third of the 46 million rental homes in the U.S. However, the market remains highly fragmented: even as a handful of institutions have amassed portfolios numbering in the tens of thousands, nearly 98% of single-family rentals are operated by private owners. Institutions did not enter the segment until after the 2008 recession and remain a small slice of the market, according to the report.
Increasingly, the way institutions are growing their presence is to build their own communities. Some 12% of new single-family construction in 2021 is being done for rentals, according to John Burns Real Estate Consulting. And, Yardi Matrix says, more than $10 billion has been allocated to the sector by institutions over the last few years.
“With so much capital looking to invest in the sector and the demand for rentals rising, we would expect build-to-rents to increase rapidly for at least the next several years,” the reportstats.
There are hurdles to build-to-rent, including finding enough land to support the construction of a large number of adjacent homes. That may entail building in areas that are miles away from population concentrations. “SFR tracts tend to be in far-flung suburbs, since few cities and inner-ring suburbs have the vacant land necessary,” the report states. T
Conversely, the advantages of build-to-rent include “the ease of managing properties close together, with the operator able to build to their own specifications and quality level,” says Yardi Matrix. “In addition, many renters prefer a new home and are willing to pay higher rent for it.”
- ◦Development
- ◦Economy
