Construction of built-to-rent single family housing (“BTR”) is plummeting, and within 18 to 24 months, there will be a shortfall of new supply relative to the level of demand. The pace at which individual BTR projects lease up has slowed, and the rents have been reduced, for many locations, reflecting the large amount of rental supply that has just been completed.
New data show that starts of BTR fell by 38% between the first quarter of 2024 and the first quarter of 2025. The data ultimately come from the U.S. Bureau of the Census, the
same agency that puts out the headline housing starts numbers each month. The National Association of Home Builders (“NAHB”) analyzes the Census numbers each quarter and summarizes them in this release. The Census numbers include some categories that most industry participants would say are not “BTR,” such as student housing, accessory dwelling units, and senior housing. They also exclude a large number of units that are sold by builders to third-party operators. If not for these peculiar categorization problems, the decline would likely have occurred months earlier than shown here.
I am in regular contact with the top players in the BTR sector, and the vast majority of them say that the number of projects getting started under development are down sharply. In addition, our contacts with national land brokers say that land purchases for the purposes of BTR development are down by 90% compared with two years back. This suggests that core BTR activity has taken a nosedive that is more severe than what is showing up on the Census Bureau’s chart.
WHY Did BTR Starts Plummet?
It is important to acknowledge the reasons that BTR starts have fallen. The overall reason is that today’s cost of capital and cost of construction make it difficult to “pencil” an adequate risk-adjusted rate of return. The term “pencils-down” became common when interest rates rose. But that does not mean that debt and equity are not available for, or interested in, BTR development projects. Debt is more expensive, and equity is more “selective,” but they generally want these kinds of projects, as long as the returns are adequate. The demand for BTR housing is still strong, and pent-up demand is set to rise over the next two years, but the pace of development is now too low.
In our business, doing market studies for BTR developers and investors, the flow of deals coming across our desks has increased compared with last year, when BTR deals were more challenged. Now, we are getting a strong volume of such study requests, which is probably a good leading indicator for production volume two years from now, in 2027 and beyond.
A Subset of Investors Dive Back In, Anticipating Pent-Up Demand
The supply of new BTR product hitting the market will be low in 2027, reflecting the low level of starts today. It is easy to forecast the completions of BTR units when you know how many are getting started today; it is a simple matter of applying the average development time to the under-construction inventory. Any projects that start development today with an eye toward opening for leasing in 2027 will benefit from a dearth of new-unit competition. This will support leasing paces and rent growth.
A minority of the players in the BTR space are setting their sights on this opportunity, but most are on-hold due to hesitancy on the part of capital partners to make this “bet.”
Rental Demand Remains Robust
Some of the concern regarding BTR centered around the record levels of apartment completions during the past year or so. But the reassuring thing is the pace at which this new supply has become leased and occupied. Amid the tidal wave of deliveries of new rental supply, occupancy rates have barely dipped, reflecting demand that has been strong enough to surprise many in the industry.
The country added 839,000 new renter households in 2024, which represents the fastest growth since 2015. This compares with a long-term average that is closer to 500,000 annually. This surge in new rental households has coincided with a huge increase in demand for rental housing of all types.
The surge in mortgage interest rates pushed more would-be homebuyers into rentership, and the BTR segment is the one that stands to benefit the most, as it allows single-family or townhome living, including a yard and an attached garage, for (often) $1,000 less per month than the cost to own. Another driver of demand is the reversal of the earlier trend of young adults opting to live with their parents. The share of young adults (age 25 to 34) living with parents has been trending downward since 2020. As they move out, forming a new household, they typically look for a place to rent. Still, 16% of young adults remain in their parents’ house, and there is room for that percentage to decline further, to get closer to a normal share (11%-12% in the period before the Great Recession), and that might continue to result in an elevated number of new household formations.
There is room for potential rent growth. Wage growth has exceeded move-in lease rent growth for two full years. And incomes among people in their 20s, 30s, and 40s are growing faster than the 4% average for the entire population, as they advance in their careers, getting promotions, and sometimes starting their own businesses.
Geographic Focus
According to data from Point2homes (using Yardi Matrix data), Texas has 21,812 houses for rent in different stages of the development process, and Arizona and Florida have nearly 14,000 in the pipeline each. North Carolina has 12,000 units set for delivery. It is important to bear in mind that a large share of these units are already in lease-up, so these numbers should not be confused with the supply that has yet to be absorbed. Occupancy rates are staying strong, and renewal rates of leased-up developments are running extremely high. Rents have sagged in places like Austin, but the supply will get absorbed, and rents are expected to stabilize in the next two years even in the most oversupplied markets.
Watch for An Uptick in BTR Investment
The expectation is that there will be an increase in capital in the single-family rental and BTR space this year in the face of this pent-up demand. It is still a minority of companies that are willing to zig while everyone else zags, but they are growing in number and sharpening their pencils. This is consistent with the recent news that JP Morgan just launched Laseter Development Group, a vertically integrated BTR development company. What makes this especially newsworthy is that JP Morgan is not just investing money into someone else’s business, but are actually going to produce the communities themselves, from buying the land to building the vertical structures (in tandem with their partners in this venture, Paran Homes and Georgia Capital).
In discussing BTR within this article, I am including: single-family homes, townhomes and other attached single-family, and cottages (aka horizontal multifamily).
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