Stumbling Blocks to Ownership Still Boosting BTR
The single-family market's loss is the rental market's gain.
Construction of new single-family rental houses slowed a bit in the second quarter. But the sector will remain “an elevated share” until newly built for-sale properties become more affordable.
That’s the word from the chief economist at the National Association of Home Builders, who said that builders and investors are facing the very same problems as folks who want to buy—high prices and high financing costs.
“In the near-term, single-family built-for-rent construction is likely to slow until the return on new deals improves,” said economist Robert Dietz. But “given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share.”
How long those stumbling blocks to ownership remain in place remains to be seen. But in the meantime, single-family rentals will continue to be a source of inventory for would-be buyers and renters yearning for a house with more space and backyards, Dietz said.
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Meanwhile, RentCafe reports that new apartment construction also remains strong. Some 507,400 units are expected to be delivered nationwide by the end of the year, the company said.
That’s less than the record-breaking apartment units that came on stream last year. But it is “significantly higher” than the annual totals recorded every year since 2015, according to the apartment search site.
“Even with the historic wave now cresting,” RentCafe pointed out, the figures “reflect the continued high demand for rental apartments.”
Single-family rentals are in high demand, too. The NAHB says the current four-quarter moving average of market share is at 7 percent of all new construction. That’s more than two times higher than the historical average (between 1992 and 2012) of 2.7 percent.
But the current share is likely even higher yet because the trade group counts only those houses built and held by their builders as rentals. If houses sold to another for rental purposes are included, said Dietz, the share may 3 percent to 5 percent greater.
By NAHB’s analysis of Census Bureau data, some 12,000 built for rent houses were started in this year’s second quarter. That’s is down significantly from the second quarter of last year, when builders started work on 25,000 rental houses.
Over the last four quarters, moreover, 71,000 rental houses were started, a 16 percent decrease compared to the 85,000 estimated SFBFR starts in the prior four-quarter-period.
Apartment construction also is slowing. But the volume of new deliveries remains considerably higher than average, with more than half of all apartment properties in the South.
Developers continue to target the South because of the region’s “business-friendly environment, relative affordability and less restrictive zoning laws,” said Doug Ressler, senior analyst & manager of business intelligence at Yardi Matrix. That stands in “sharp contrast” to the more restrictive environment found elsewhere, he added. (Data from its sister company, Yardi Matrix, was used for RentCafe’s analysis.)
By year’s end, renters in the South will have an estimated 265,613 brand-new apartments to choose from. That’s a 52.5 percent of all new apartments set to open this year.
Three Texas metros—Dallas, Austin and Houston—are leading the apartment-building boom in the region. Dallas is getting nearly 29,000 units, Austin almost 27,000 and Houston about 14,500.
However, the New York City metro area continues its reign as the top apartment builder for the fourth year in a row, thanks to a development spree in the Big Apple’s boroughs, especially Brooklyn and Manhattan.
More than 30,000 new units are set to open in 2025 in New York and environs, but that’s down 8.4 percent from 2024. Almost 7,200 of those will be in Brooklyn. More than 4,600 are coming in Manhattan and 2,630 are rising in Queens.
