How SFR Developers Can Cut Costs Without Losing Buyer Value

John Burns Real Estate Consulting did a recent interesting analysis of several sold-out projects in the single-family rental space. It found that cutting costs in designing and building a community development doesn’t automatically translate into lesser perceived value.

Three features that fell to the wayside were a private primary bathroom, a private yard, and a garage.

“Eagle Ridge at Tehaleh, south of Seattle, offered two plans (out of five total) in their first phase where the primary and secondary bedrooms shared a bathroom,” the firm wrote. “While not a common tradeoff, it targeted the apartment buyer who was already accustomed to a 1-bath residence.” With prices starting in the $400,000s, the builder reported that models with shared bathrooms were as successful as conventional plans.

“In the active adult portion of the Kissing Tree master plan community in San Marcos, south of Austin, The Cottages at Kissing Tree swapped a private yard for a prime location overlooking the 10th and 18th holes of Kissing Tree’s golf course, topping it off with a view of the Texas Hill Country,” the firm wrote. “These homes have been selling so well (starting in the high $300,000s), their success prompted the opening of two new phases by the builder, Brookfield Residential.” The common green space “gave the illusion of private yards” but with no maintenance costs.

And at the Chatham Park Cottages in suburban Raleigh, 23 out of 30 homes have assigned parking spaces, not garages. “Starting at a petite 826 square feet and prices in the $200,000s, these homes appealed to a broad mix of buyers (first-time, move-down, active-adult, and recently divorced), who were willing to trade a garage and private yard for a charming, high-quality, 2-bed/2-bath, affordable home with a front porch,” the analysis noted.

When something works in the industry, it does make sense to pay attention. Executives in many industries often mistake their tastes and requirements for those of their customers, which may not be the case. It can take experimentation to find what might be optimum. For developers, it might make sense to first watch reactions to different designs—at various costs to check price sensitivity—and then to plan appropriately. 

But there is another consideration to keep in mind as well. The country has allowed a massive housing shortage to develop over the last decade. Pandemic realities only aggravated the condition as demand for owned housing with more space than an apartment increased. Prices skyrocketed.

As a result, many who wanted to buy have had to moderate their desires. A house would cost more, offer less. The process of finding any affordable place became a writhing plane of competition.

To assume that buyer behavior these days is descriptive of a typical market and indicator of smart strategy must sit in that context. Maybe people accepted fewer amenities because something was available at a price they could afford. In other words, compromise out of necessity.

Not to dispute the “what” and “how” of the findings, only raising the question that can be the hardest to answer in any strategic context: why. A lesson might work today but not in a few years when the context changes. That’s fine, so long as people remember that conditions do eventually change.