Affordability challenges, evolving demographics, and shifting internal migration are profoundly changing the U.S. housing market, impacting not only renters but investors, too. These winds of change are sharply increasing demand for single-family rental (SFR) build-to-rent (BTR) communities, creating strong opportunities for commercial real estate investors.
Economic factors encourage more households to rent
High mortgage rates, rising home prices, and affordability pressures are causing many would-be homebuyers to delay ownership, remaining in the rental market for longer.
In today’s market, the median U.S. household needs to devote 48% of its income to housing payments to buy a home. Even as interest rates fall, the barriers to homeownership, like high financing costs and low inventory, are considerable, driving the number of households living in rentals to all-time highs.
In addition to economic headwinds, demographic trends are also reshaping the rental landscape.
Demographic shifts alter housing demand
Across the generational divide, shifting demographics have substantially changed household preferences.
Millennials, America’s largest generation, are entering a residential housing market when affordability is a major obstacle in most markets. Gen Z is renting too, but for a different reason. By and large, they prefer more flexible living arrangements and modern conveniences. At the same time, Baby Boomers are renting in droves, downsizing from homes to luxury rental communities that provide access to amenities and require less maintenance.
Today’s generational dynamics are converging to drive up rental demand, underscoring the need for more BTR communities in popular suburban markets.
Internal migration patterns prompt development
Population growth in the U.S. continues to be concentrated in metropolitan areas where the labor market, tax climate, and cost of living are attractive. In markets where rental demand is growing, particularly in the Southeast, Texas, and Mountain West, BTR communities are finding success as they are drawing interest from relocating families and remote workers.
High demand and limited supply collide
As affordability and demographic trends converge, renter demand for high-quality housing is expected to climb, extending beyond traditional multifamily. SFR homes, which offer ample space, amenities, and access to quality schools, are gaining traction with households of all generations.
While new supply of all types of housing remains constrained by land costs, zoning restrictions, and construction delays, SFR’s pipeline is strong.
America’s limited supply of quality rental housing is a prime reason for the need for BTR development, especially for in-demand suburban rental markets.
New pricing dynamics
As demand outpaces supply, rental pricing remains resilient in many BTR markets. As the affordability of for-sale homes continues to weaken, the relative value proposition of renting has strengthened. This evolving dynamic is supporting strong occupancy rates and propelling income growth for investors.
BTR positioned for growth as CRE evolves
BTR development is rapidly expanding as traditional multifamily development slows. Compelling fundamentals, favorable lending terms, predictable cash flows, and lower vacancy risks support investment profitability.
As other commercial real estate sectors stagnate, BTR starts continue to outpace historical highs as competition for land, labor, and materials remains low. More advanced construction methods are improving project feasibility and mitigating construction risk, a key factor in securing financing and ensuring on-time delivery.
Amid rapid marketplace recalibration, BTR development is gaining momentum, simultaneously pleasing both renters and investors. As market dynamics evolve, BTR is well-positioned to move into the forefront of U.S. development.