Build-to-Rent Draws New Interest
As home sales have declined over the past year, the construction of build-to-rent single-family housing is on the upswing. That trend is opening up new investments from new players that may add fuel to the recent moderation of rents in some markets.
Elevated Prices and Rates
Many would-be buyers have been pushed out of the home-buying market and into rental properties by a dramatic rise in home prices and mortgage rates.
The median price of a home in December was $366,900, according to the National Association of Realtors (NAR). That is a 2.3 percent increase over the $358,800 average price in 2021. Consequently, it marks a record 130 consecutive months of year-over-year increases in home prices.
Along with prices, mortgage rates have climbed. In 2021 a 30-year fixed-rate mortgage averaged less than 3 percent. Though it has been higher, today’s rate averages 6.66 percent.
Declining Affordability
The bitter stew of higher prices, volatile mortgage rates, and persistent inflation has made financing a home purchase difficult. Housing affordability declined in each of the last three quarters of 2022, according to the National Association of Home Builders (NAHB). As a result, home affordability is now at the lowest level since NAHB began keeping records in 2012.
With affordability declining, a key component of the home sales market, first-time buyers, is down.
The NAR’s “Profiles of Home Buyers and Sellers” report, found that 26 percent of home sales last year went to first-time buyers. That is a drop from 34 percent posted in 2021 and an all-time low.
“It’s not surprising that the share of first-time buyers shrank to the lowest level ever recorded given the housing market’s combination of historically low inventory, persistently high home prices, and rapidly escalating interest rates,” said Jessica Lautz, NAR vice president of demographics and behavioral insights.
In addition, first-time buyers were older. In 2021, the average first-time buyer was 33. Last year the average age rose to 36. Again, that is a record, according to the NAR.
Build-to-Rent
Because many potential buyers are locked out of the home-buying market, institutions and large investors are fueling the build-to-rent market.
Traditionally, single-family rental houses have been developed by an individual or small group of investors who build or acquire houses to rent. However, that is changing.
Big Players Upping Their Game
From long-term build-to-rent companies, such as Tricon Residential, Inc., to investment bank JP Morgan Chase & Co., more money is flowing into the market.
These large firms are building on a large scale. Instead of individual properties, they are constructing entire rental communities.
Tricon owns over 36,000 single and multi-family rentals in Canada and the U. S. In August, the Arizona State Retirement System (ASRS) committed $500 million dollars to finance Tricon’s building of SFR properties.
Progressive Residential is another large single-family rental builder. It operates 70,000 rental homes and is building another 26,000.
In November JP Morgan Chase announced it is aiming to be the nation’s largest landlord. It teamed with Haven Realty Capital to sink $1 billion in a joint venture to acquire and construct build-to-rent communities across the country. Haven already has over $1 billion in rental communities under management.
The single-family rental market is expected to expand dramatically through the end of this decade, according to MetLife Investment Management (MIM).
Institutional investors owned about 700,000 single-family rentals by the end of last year, MIM figures. That is about five percent of the market. However, by 2030 MIM forecasts that those investors will own 7.6 million homes and control 40 percent of the market.
Building Communities
These large firms are building on a large scale. Their impact may change the way we think about where we live.
“In the medium to long term,” notes the MIM study, “we believe the most significant effect of the institutionalization of (SFR) will be a rise in popularity of master-planned rental communities.”
Read More:
- Tips for Preparing and Filing Your Small Business Taxes Correctly
- Effective Ways to Save Money on Business Taxes
- Should You Be Paying to File Your Taxes?
Come back to what you love! Dollardig.com is the most reliable cashback site on the web. Just sign up, click, shop, and get full cash back!