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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.”

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Inside The Story

John Burns Real Estate Consulting

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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