Single-Family Build-to-Rent Special Report: Strategies evolve with rates elevated and supply growth accelerating

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While current conditions present greater challenges compared to earlier periods — particularly on the supply side — we see investors and developers continuing to act as strategies evolve with rates elevated and supply growth accelerating.

Deliveries of new units increased in 2023, and new construction outpaced absorption, resulting in higher vacancy rates and rents that were essentially flat. These pressures should begin to ease by the end of 2024, with construction starts slowing. The debt and equity environment has evolved, and investment markets have cooled, but transactions are still getting done — albeit at lower volumes than in recent years.

Report highlights:

• After years of rapid growth, the single-family build-to-rent (SF BTR) market is facing its first period of uncertainty. New development surged in 2023, but demand was also elevated; absorption spiked 35% from 2022 levels but has not kept pace with deliveries.
• The pace of economic growth as measured by GDP has topped expectations throughout the year, including a sharp spike higher in the third quarter. Inflation was a drag on the economy throughout much of 2022 and early 2023, but the rate has come down to manageable levels in the second half, reducing a threat to the overall economy. Labor markets remain strong, with an unemployment rate under 4% and 2.7 million net new jobs created in 2023.
• Despite dropping by about 100 basis points since an October peak, residential mortgage rates are elevated and restricting home buying activity. The average rent on a SF BTR unit is $828/month lower than the average monthly mortgage payment on a median-priced single-family home.
• Construction trends are mixed, with deliveries up approximately 20% from 2022 levels, while starts are 11% lower than the pace established one year earlier. Construction is concentrated in the fast-growing South region, with Texas, Florida and the Carolinas top spots for new development.
• Vacancy rates have trended higher in 2023, as new supply growth has outpaced absorption by approximately 25%. Phoenix, Dallas-Fort Worth and Atlanta have led the way for absorption, while Charlotte and San Antonio are among the top markets for rent growth.
• Agencies remain the primary sources for acquisition financing, with underwriting similar to new Class A apartments. Equity investors are exercising greater caution in the current environment and aware of the competitive impact of new supply. Terms for construction financing became increasingly conservative in 2023, and lenders have become more selective on the loans they quote.

Read the full report, or explore our Build-to-Rent page to learn more.