Who and What Is Driving the Build-to-Rent Trend

Paying attention to trends and shifting marketing strategies can often mean the difference between thriving and merely surviving. The build-to-rent trend is growing due to the housing shortage, and it provides an opportunity for builders to stay current and flexible.

What is build-to-rent?

Build-to-rent (or B2R) is single-family homes — often in master-planned communities — built specifically to rent instead of sell. The trend kicked off at the end of the Great Recession, when investors snapped up foreclosed homes and flipped them into rentals.

What’s driving the build-to-rent trend?

Supply and demand, affordability, lifestyle preferences, and higher profit margins are the primary reasons why the build-to-rent trend is attracting growing numbers of buyers and builders. According to the Zillow Group Consumer Housing Trend Report 2019, single-family homes are the top desired home type among renters (26%), total buyers (77%) and new construction buyers (82%). For renters, a single-family property can often provide the space, privacy and amenities that aren’t always available in a multifamily building.

Affordability

Millennials still believe the American dream means owning a home, but they struggle to do so. A number of financial factors — including student debt and stagnant wage growth that make it difficult to save for a down payment — hold them back from purchasing, so they keep renting.

Low inventory, high home values

For-sale inventory continues to remain at historic lows, with fewer homes on the market than there were in 2018 — slightly less than 1.5 million homes, which is the lowest level on record since at least 2013. At the same time, high interest rates and growing home values make affordability a bigger challenge for many buyers.

Delayed life events

Millennials are the biggest wave of potential home buyers on the horizon, but many from this generation are delaying major life events like getting married and having children, which keeps them more interested in renting and less in being tied to a mortgage.

Lifestyles

Many renters simply prefer that housing choice. Often it comes down to being free from exterior maintenance chores and the potentially expensive upkeep that homeownership entails. Renting also appeals to those who like a mobile lifestyle and the option to move whenever they want to.

New-build sales: low profit, high costs

Builders face the unending challenge of offsetting low profits from a sale against high costs of land, labor and lumber. Getting renters into new-build rental homes and continuing to collect revenue after occupancy may be faster and more profitable than waiting for a master-planned community to completely sell out.

With predicted growth in rent prices, builders might see even more profits — and sooner — in single-family rental developments. 

Who’s looking at build-to-rent?

The primary customers in the build-to-rent trend are downsizing baby boomers hit by the recession and millennials battling debt and lacking the funds for a down payment. It’s probably no coincidence that these two cohorts comprise 65% of today’s single-family home renters.*

Baby boomers: downsizing in space but still have budget

More than any other generation, boomers consider a new construction home that’s within their initial budget and has a spare bedroom and ample storage as very or extremely important. And while some boomers might be downsizing for financial reasons, they still have the money to rent the home they want.

Millennials: facing life-changing events but not quite there

Nearly 1 in 3 millennials (32%) who currently rent say they plan to continue doing so because they’re saving for a down payment.* But there’s a same share of millennials who plan to continue renting because they want to be able to move easily as their lives change. Build-to-rent might serve both types of millennial renters.

Nearly half (45%) of all buyers considered renting, as did 59% of millennial new construction buyers. That’s a significant pool of home shoppers who are on the fence about their housing options. The build-to-rent trend isn’t likely to disappear soon, and these rentals could serve as gateway homes to new construction when the time is right.

*Zillow Group Consumer Housing Trends Report 2019 survey data