BTR Townhomes Take Off

Americans’ quest for spacious, budget-friendly housing has been fueling the rapid expansion of the build-to-rent sector over the past five years. And the sector is poised for significant growth in the long term due to consistent demand.

However, the recent deteriorating economic conditions have caused a slowdown in development. After peaking from 2022 to 2023, BTR starts were down 42 percent year-over-year in 2024, according to Keaton Merrell, managing director at Walker & Dunlop. Despite the decline, data provided by the commercial real estate finance company shows that BTR stock is slated to increase again over the upcoming years. Walker & Dunlop is tracking more than 2,480 active leasing or stabilized BTR projects across the country, totaling more than 326,000 units, with another 897 properties planned and under construction, totaling over 167,000 units. The company projects that BTR will account for 8 to 11 percent of all rental deliveries, including apartments, in the future.

“There are good indications that BTR supply may have peaked, and you can see it in some of the improvements in occupancy, not just in the Texas and Florida markets but also in Arizona,” said Bryan Smith, CEO of American Homes 4 Rent, in a first-quarter earnings call. The company owns a portfolio of more than 60,000 single-family homes across the U.S.

Nationwide, the BTR and SFR occupancy rate stood at 94.7 percent in February, according to a research bulletin by Yardi Matrix. Though this figure was down from its 2021 peak of 97 percent, the report states that occupancy had been steady for months and was unlikely to dip much further.

BTR townhomes strike a smart balance. They deliver higher density than detached homes, making projects more financially viable while still offering residents the space and privacy they seek.

—Doug Motley, Co-Founder & Managing Principal, JLAM

Fueling the ongoing demand for renting single-family homes is the country’s growing housing supply gap, with U.S. population growth outpacing housing starts. Millennials, the largest U.S. generation, are entering their prime household formation years but face high mortgage rates and constrained housing supply. Many are also burdened by student debt, curtailing their homebuying options.

“Borrowers are in the 6 to 7 percent range, deciding to rent, which is creating a heavy demand for BTR all throughout the U.S.,” said Max Mellman, managing partner & founder of real estate investment bank Max Benjamin Partners.

Robust demand for SFRs also stems from renters with children or pets that want more space than apartments offer, people who need space for home offices, and divorcees, according to the Yardi Matrix report.

Density-privacy balance

Within the larger BTR sector, there’s rising interest in townhome communities, which feature higher density than detached, for-rent housing while still affording residents space and autonomy. Merrell noted that townhomes lead the market in rent growth and occupancy.

An outlook report by Walker & Dunlop indicates that some 35 percent of BTR inventory consists of townhomes, while 41 percent is single-family detached and 24 percent is “horizontal multifamily,” which is defined as “detached or semi-detached single-story units, typically with a ‘cottage home’ design.”

Two-story townhomes and single-level rowhomes come in two- to seven-unit building configurations and often feature individual entrances and private garages. They’re ideal for neighborhoods next to cities and infill sites where density is important.

For renters, townhomes have certain advantages despite the downside of walls shared with neighbors. They typically offer lower rents than comparable detached homes and larger unit sizes than horizontal multifamily. They may also feature fenced yards for pets.

“BTR townhomes strike a smart balance,” noted Doug Motley, managing principal of investment and development firm JLAM. “They deliver higher density than detached homes, making projects more financially viable while still offering residents the space and privacy they seek.”

Motley pointed to the company’s Windward Grove community in Milford, Del., which created a “clear market differentiator” by introducing townhomes to an area where detached homes were plentiful. The 203-unit, pet-friendly property features a mix of two- and three-bedroom units with advertised rents ranging from $2,250 to $2,450 per month. Amenities at the pet-friendly community include EV charging stations, pool with sundeck and grilling area.

“The townhome product, specifically, is attractive to developers due to their ability to maximize land use while offering amenities that modern renters desire,” believes Enrique Huerta-Del Real, co-founder & principal of Rockview Capital, which invests in multifamily properties across the U.S.

Huerta-Del Real added that developers also like the product because they can capitalize projects with institutional capital and can sell those assets to a wide spectrum of investors, both public and private. Selling points include the properties’ newer vintage, higher rents and strong resident demographics.

BTR vs. Buying
The median home sale price in the U.S. reached a near-record high of $437,864 in April 2025, according to Redfin data, while the average mortgage rate hovers around 7 percent. The soaring cost of homeownership in recent years has created an unprecedented affordability gap between owning and renting a home. A 2024 CBRE report showed that the average monthly mortgage payment for a newly bought home exceeded apartment rents by 38 percent.
BTR can offer a significant cost advantage compared to owning a home, according to an analysis by Walker & Dunlop. In Columbus, Ohio, a BTR unit that rents for $3,100 provides comparable size and features to a for-sale house that costs $4,221 per month to own, representing a 27 percent discount. The market for BTR properties includes not only people who are priced out of homeownership, but also “discretionary renters” who are drawn to the properties that simulate the homeownership experience without the long-term commitment of a mortgage. In-demand features of BTR properties include garages, fenced yards and space for work-from-home offices.

Overcoming hurdles

As in the broader housing industry, rising costs have hobbled new BTR construction, while the White House Administration’s rollout of new tariffs in recent months has threatened to further increase the cost of building materials. Construction costs made up 64.4 percent of the average price of a new home in 2024, up from 60.8 percent in 2022, according to the National Association of Home Builders.

“I do think tariffs will impact costs to the negative, but that doesn’t matter much today because the math is broken to build just about any BTR community,” noted Randy Bury, founder & owner of Moderne Communities. “It’s hard to justify the development and leasing risk when newly built communities are regularly selling for at or below replacement cost.”

Mellman is more bullish on the prospects for new BTR construction, observing that labor costs have decreased because fewer projects are being built, counteracting the rising cost of construction. “The builders that end up getting a shovel in the ground, we suspect they’ll do really well, just because there’s such a high demand for housing, both on the rental side and the sales side,” he said.

Institutions looking to grow their BTR market share are increasingly focused on new construction and/or forging partnerships with homebuilders. High-profile moves in the sector this year include Blackstone entering a $300 billion deal with NexMetro Communities to recapitalize a BTR portfolio in Phoenix and metro Denver. In February, J.P. Morgan Asset Management partnered with Georgia Capital and its affiliate Paran Homes to launch Laseter Development Group, a Southeast-focused BTR development firm with inaugural projects in suburban Atlanta and Nashville, Tenn.

The builders that end up getting a shovel in the ground, we suspect they’ll do really well, just because there’s such a high demand for housing, both on the rental side and the sales side.

—Max Mellman, Managing Partner & Founder, Max Benjamin Partners

Though the construction pace is slowing, the fundamentals are in place to support long-term growth of the BTR segment. Besides the widening monthly affordability gap between buying and renting, Bury cites the rise of “renters by choice”—people who choose to rent for lifestyle reasons rather than financial necessity—as a factor in BTR development.

“The stigma of renting no longer exists,” he noted.

Read the July 2025 issue of MHN.