Build-for-rent housing has boomed since the pandemic began. More than 6,700 build-for-rent homes were completed in 2021 alone, marking a record-breaking year for the sector.
This year is set to surpass those numbers by a landslide. In fact, according to data from Yardi Matrix, 2022 will see more than double last year’s completions, clocking a whopping 14,000 build-for-rent homes by the end of the year.
Pretium Partners’ Dana Hamilton, senior managing director and head of real estate, and Matt Johnston, managing director and head of build for rent, are at the forefront of this ongoing surge. Earlier this year, Pretium launched a $600 million joint venture to build 2,000-plus rental homes throughout Florida, Indiana, and Ohio. Last September, the company made a similar deal for 3,000 build-for-rent homes.
BUILDER sat down with Hamilton and Johnston to get their insights on what’s behind this build-for-rent boom—as well as what the future holds for this growing segment of the market.
BUILDER: Why has build-for-rent construction increased so much in the last year or so?
Hamilton: It certainly has been an incredible year in terms of support for build-for-rent construction. There is a confluence of factors driving this growth, but it ultimately comes down to unmet demand and shifting consumer preferences.
At the forefront of this is a desire for more space—not only for families but also for anyone who embraces the opportunity to work from home. As a result, we have seen unprecedented demand from individuals looking to move into our three- and four-bedroom single-family residences—and, therefore, a growing need to create more of the housing people want.
Investors understand these macro drivers and the persistent undersupply of housing, and they are increasingly becoming as comfortable with single-family build-for-rent development as they have been with traditional multifamily development.
BUILDER: What are the big-picture benefits of this increased build-for-rent construction?
Johnston: There is a shortage of viable housing stock in today’s market. We do not have enough well-located and affordable homes to meet the growing demand for housing in the U.S. that we are experiencing. Since the global financial crisis, the housing market has suffered from persistent underbuilding and underinvestment, creating a deficit of up to 7 million homes by some estimates.
The growth in professionally managed build-for-rent communities not only helps to address that undersupply of housing but also provides flexibility of movement, affordability, the space consumers want, and generally makes the identification and application process simple, fair, and easy. New homes are also healthy homes—healthy for the environment, with low-impact landscaping and greener materials, and healthy for their inhabitants, with modern, electric appliances and access to space. This is another crucial advantage: that we can be more mindful of environmental concerns and build homes that consume less energy and use greener materials.
BUILDER: What types of markets tend to be best for build-for-rent communities? Where is there the most demand for these properties?
Johnston: The most recent Census data shows that domestic interstate migration has increased by over a third as a result of the pandemic. That migration is largely being driven by individuals moving to the Sun Belt, Florida, and the Midwest. Our two previously announced joint ventures with leading regional developers and builders are heavily focused in these regions, and this speaks volumes to the inherent demand for and appeal of the markets we are prioritizing.
Our investment process is also highly selective and informed by 10 years of dedicated focus on single-family real estate and residential finance. We are looking for markets with good schools, high marks for safety and green space, as well as easy access to local services and employment.
These are areas you otherwise would need to buy into; that’s the overwhelming benefit of not only build for rent, but single-family rentals more broadly. It takes communities that historically have only been available to those who can and choose to buy a home, and it makes them more available and accessible to a much broader group of prospective residents who’d like to live there.
BUILDER: Who are build-for-rent properties most suitable for?
Hamilton: There are a wide range of demographics that look at single-family rentals as a valuable option. On the one hand, you have families or families-to-be who are looking for space to raise children and a neighborhood that provides access to good schools. You also have older adults who are no longer interested in homeownership and young professionals looking for a different lifestyle than the one offered by the traditional multifamily apartment setting.
Johnston: Customers looking for flexibility and a limited maintenance burden have traditionally turned to multifamily housing. Fundamentally, build-for-rent communities offer a different set of amenities to residents. This includes an attached garage, room for your dog to run around, or an outdoor area to host friends and family—or all the above.
BUILDER: Where do you see the build-for-rent sector heading in the coming years?
Hamilton: I am confident build for rent will continue to grow given a number of factors. When we build new, we can build what people want and need today—and also anticipate their needs for tomorrow. We can also build greater density, which allows us to help address the significant unmet demand for housing while still providing individual households with the additional space that they want and need.
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