Builders’ Incentives During the Home Shortage

Currently, the US is in a housing crisis due to the shortage of listings. According to CNN,  there are only 1.08 million existing homes on the market, and the affordability of a single-family home is at its lowest level in several decades. One bid to close the estimated 3.8 million unit deficit in housing is by building new, single-family homes — but some are not for sale, they’re for rent.

Builders are using this new segment called “build for rent” (BFR) or “build to rent” (BTR) to their advantage. These homes are built primarily in suburban areas where there are good schools and low crime rates. The majority are built in Texas, California, Arizona, Florida, North Carolina and Georgia. According to the National Rental Home Council and Yardi Matrix, the average rent for a BFR/BTR home is $2,039.

“What is driving the growth of BFR is the affordability problem,” said David Howard, CEO of the National Rental Home Council, a nonprofit organization that advocates for the single-family rental home industry. “With interest rates at levels we haven’t seen in years, housing affordability continues to be a challenge for many families. People are waiting for interest rates to come down. There is an appeal and broad-based demand to live in a single-family home, even as a renter.”

“When people think of build for rent, they think of a house,” Ben Miller, CEO of Fundrise said. “But that house is in a community of 100 to 200 homes. You want it to be like a multifamily apartment building: People like having a fitness center, pool and amenities, but with space for their kids and pets.”

Homeownership is still the biggest wealth generator in the US. There are people who still want to build equity in a home. There are also those who do not have the means to purchase a home but want to live in a house in a community.

“People keep moving to the Sun Belt. Where are they going to live? They are going to live in houses, I think,” said Miller. “It is a competition between houses and apartments, not between owning and build for rent.”

“We thought people would want smaller homes,” said Miller. “But they want the bigger home. They don’t want the starter home.”

“A four-bedroom home with the master downstairs on a quarter-acre lot that is walkable to schools? That’s the American Dream! And if you can’t own it, renting it is the next best thing,” said Bruce McNeilage, CEO of Kinloch Partners.

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