(NewsNation) — The build-to-rent business is booming for real estate developers as buying a home becomes more out of reach for potential owners.
The market has priced out many first-time homebuyers, which consist largely of millennials entering a new stage of life as they begin to start a family. Companies are maximizing this by building neighborhoods of single-family homes to rent rather than to sell.
AvalonBay Communities, one of the largest multifamily real estate investment trusts, recently bought $47 million worth of townhomes in Bee Cave, Texas, and plans to invest over $1 million in the build-to-rent sector, the Wall Street Journal reported.
“We think we’re really in the early stages of what could be a pretty significant, almost new asset class,” AvalonBay Chief Investment Officer Matt Birenbaum told the WSJ.
Built-for-rent single-family homes ballooned from 2021 to 2023 when the share of housing starts doubled to 10%, according to the National Association of Realtor’s analysis of the U.S. Census Bureau’s Survey of Construction Data.
All regions saw an annual increase in construction of these types of homes, but greatest in the Midwest where the share of built-for-rent homes rose from 5% in 2021 to 13% of the market in 2023.
Some economists say this is not a solution to fixing the record-high home prices but instead presents other issues.
“When institutional investors or larger landlords own the rental units, we see an increase in the number of evictions for tenants,” said Ruth Jones Nichols, a former housing official in the Biden administration, to the WSJ. “That’s something we really want to keep an eye on.”
But developers say the build-to-rent homes are not taking away from the for-sale supply.
“We are not competing with individuals trying to buy individual homes in the private market,” Birenbaum said.