Source Article: https://www.nar.realtor/blogs/economists-outlook/built-for-rent-housing-starts-continue-to-increase
The recent surge in built-for-rent housing starts is a fascinating trend in the ever-evolving real estate market.
As a real estate agent, I’m always on the lookout for new developments that could benefit both buyers and sellers. The article, “Built-for-Rent Housing Starts Continue to Increase,” highlights a growing segment that addresses some pressing challenges in the housing market. However, this trend also brings to light some critical issues that potential homeowners need to consider.
The housing market is currently in a state of gridlock, largely due to homeowners holding onto their low-interest rate mortgages. This has led to a severe shortage of inventory, pushing home prices higher and making homeownership an increasingly elusive goal for many. With first-time buyers now typically in their mid-to-late 30s, it’s clear that the traditional path to homeownership is shifting.
So, what happens to those who find homeownership out of reach? Enter the built-for-rent concept. This trend involves the construction of new single-family homes specifically designed for renting. It offers a middle ground for those who need more space than an apartment can provide but are not yet ready or able to buy a home. Investors see this as a lucrative opportunity, given the rising demand for rental properties.
Imagine being able to rent a brand-new single-family home with a yard for your dog, space for a home office, and even room for a growing family. These homes often come with amenities that are rare in typical rental properties, such as walking paths, pickleball courts, and shared gardens. For many, this setup provides a quality of life that’s a significant step up from apartment living.
However, this trend has a significant downside. If the goal is homeownership, then the increasing focus on built-for-rent housing may exacerbate the problem of limited supply. Resources and efforts that could go into building homes for sale are being diverted to rental properties, thus widening the gap in supply and demand. This shift could further drive up home prices, making it even more difficult for potential homeowners to enter the market.
The data speaks volumes. According to the U.S. Census Bureau’s Survey of Construction Data, built-for-rent single-family housing starts grew from 81,000 units in 2022 to 90,000 units in 2023. More impressively, the share of these homes among all housing starts has doubled from 5% in 2021 to 10% in 2023. This growth marks the highest numbers since 1974, highlighting a new trend for investors.
New construction is now focusing more of its market share on built-for-rent housing instead of building homes for sale. Regionally, the Midwest has seen the most significant increase, with built-for-rent homes now making up 13% of the market, up from just 5% in 2021. The Northeast and South have also experienced notable growth, with shares rising to 9% and 8%, respectively. Even the West, which has the smallest share, shows promising trends.
With less of the market share of new construction focused on developing homes for sale, this further creates a gap in supply and demand. If fewer homes are being built for purchase, it could prolong the inventory shortage and keep home prices elevated, making it even more difficult for aspiring homeowners to achieve their dreams.
What does this mean for the future?
If homeownership continues to be a challenge for young adults, built-for-rent housing is likely to become an even more dominant part of the market. However, this might not be a positive development for those aspiring to buy. Potential homeowners should consider buying sooner rather than later, as the trend towards built-for-rent housing could continue to drive prices up and reduce the availability of homes for sale.
As a real estate agent, it’s crucial to stay informed about these trends. Built-for-rent housing presents both opportunities and challenges. While it meets the immediate needs of those not ready to buy, it also impacts the overall housing market dynamics, potentially making homeownership more difficult in the long run.
Built-for-rent housing is a growing segment that reflects the changing needs and realities of today’s housing market. However, it’s a double-edged sword that could make homeownership more challenging. For those of us in the real estate industry, it’s essential to guide our clients through these complexities and help them make informed decisions. If you’re considering buying a home, it might be wise to act sooner rather than later, as market conditions continue to evolve.