SFRs Are More Stable Than BTRs and Apartments

With interest rates still high and down payment funds hard to assemble, rentals have become the new American reality for many. Forget the homeownership dreams at least for now. 

But within the rental category, there’s not one but three options, and they’re not equally desired, according to a recent analysis by John Burns, written by James McKeever and Jesse McConnico. The report tracked build-to-rent, scattered single-family rental homes and apartment rents nationwide.

The most stable of the three these days is the SFR category, with the BTR and apartment rents showing more up and down movement. In fact, SFR has been stable, the report says, for the last four-plus years versus the other two, which have been more volatile. Back in 2020 and 2021, the increase in household formation led to BTR and apartment rents being raised more than SFR, whose owners tended to increase them at what’s termed “normal rates.”

The reason, the report cited, is that the SFR owners have been in the business for a longer period and therefore don’t tend to react as quickly to market changes but stay the course. In the period from 2022 to 2023, a return to normal household formation rates, occupancy decline and completion of BTR and apartment supplies led to competitive pressures on those segments, so their rents grew less.

After big rent growth above its counterparts in 2021 and most of 2022, BTR rents have now slowed 1.3% year-over-year compared to apartments at 3.5% and SFR at 4.7%. The reason for the slowing of both BTR and apartment supply is new inventory. BTR rent declines occurred most in Houston and Phoenix while apartment rent drops happened most in Atlanta, Las Vegas and Phoenix.

In the last year, BTR saw a 30% surge in construction with this group’s developers buying up 14% of finished residential lots nationwide, including about one third in the Southwest. Many of the BTR communities are grouped near population growth centers in parts of that area plus the Southeast and Texas. Altogether, there are 1,177 completed and actively leasing BTR communities with 146,000 rental homes. And there will be 708 more communities soon, the report said. This has weighed on both BTR and apartment occupancy numbers, resulting in the lower prices.

What type of homes appeal the most? The majority consist of attached units such as duplexes, single-level rowhomes, cottage patio and multiplex townhomes with the latter being of greatest interest. That may not last for long since newer developments feature more horizontal apartments. And because of the rising cost of land, another noteworthy trend is an increase in homes per community or greater densities.

New rents have affected mostly BTR and apartment occupancies. The apartment number went down to 94% now versus its stronger state of 97.5% in early 2022. The BTR occupancy fell to 94% in this year’s month of April but outperformed the others due to what the report cited as “less aggressive rent growth in the past six to nine months.”