A New Housing Trend: Built-for-Rent

In recent years, a notable shift has occurred in the housing market, signaling a rising preference for single-family rentals. While traditionally, single-family homes were predominantly owned, a significant portion—16.6 percent—are now rented, with recent construction data indicating a surge in purpose-built rental communities.

This growth can be attributed to various factors, including the soaring home prices, which have nearly doubled over the past decade, exacerbated by high interest rates, making homeownership financially challenging for many. As a result, renting has become the more viable option for households desiring the single-family lifestyle.

Enter the "built-for-rent" (BFR) communities—large-scale developments of single-family homes designed specifically for renters. These communities offer amenities akin to multifamily housing, appealing to those seeking a middle ground between renting and homeownership. Construction of BFR homes has seen a remarkable increase, with 2023 alone witnessing a three-fold rise in starts compared to the previous decade. This trend persists even as overall home construction has slowed down since 2021.

Despite the nascent nature of BFR communities, single-family rentals have long been established, with 43 million Americans already residing in rented single-family homes, representing over 40 percent of all renters nationwide. These renters tend to prefer suburban living, with larger households compared to apartment dwellers. Financially, single-family rentals offer advantages such as lower rent burden rates, with higher median household incomes compared to apartment renters. However, there remains a significant income gap between single-family renters and homeowners.

Geographically, single-family rentals are concentrated in the South and West, particularly in California, where the rates are notably high. This trend is expected to intensify, driven by investor ownership and concentrated BFR development in these regions. Opinions among housing experts are divided on the long-term implications of this trend. While proponents argue for increased access and flexibility, detractors raise concerns about the impact of institutional investors on housing affordability and equity distribution.

As housing affordability remains a pressing issue, the growing involvement of investors in the single-family sector is likely to attract the attention of policymakers in the years to come.