Purpose-Built SFR Communities Catch the Eye of BTR Operators

Homebuilders play a fundamental role in accelerating supply growth in the single-family build-to-rent (BTR) market by developing communities on existing land parcels when renter demand is elevated. Some of the largest single-family rental operators are enlarging their inventories by partnering with homebuilders or buying newly built communities.

This is a shift from the more traditional strategy single-family rental operators have taken of acquiring individual homes to grow their inventory, according to a Northmarq BTR market report. This signals a preference for purpose-built single-family rental communities among some of the largest operators, including Invitation Homes and American Homes 4 Rent.

Both starts and completions of single-family for-rent units have increased this year, with notable inventory growth across the Sunbelt. More than 40,000 BTR units were started during the first half of 2024, up 24% from the same period last year, according to the report. Construction starts in the first half of this year were about 5% ahead of the prior peak in 2022.

Meanwhile, completions in the sector totaled 50,000 units during the first half of the year, a 25% jump from the first half of 2023.

Southern markets are desirable to single-family BTR developers driven by affordable land and strong population growth. The region accounted for more than 60% of the national total of single-family BTR starts during the first half at about 27,000 units, up 17% from the first half of last year, and deliveries of more than 33,000 units, up more than 50% year-over-year.

“With a few exceptions, these trends are likely to continue,” said the report. “While there have been a handful of examples of new build-to-rent communities being developed in more expensive markets such as California, or in slower growth regions including the Midwest, the bulk of the projects that will move through the construction pipeline will be in the Sunbelt.”

Construction starts and deliveries elsewhere in the country were mixed for the sector. About 8,000 units were started in Western markets during the first half of the year, double the volume recorded during the first half of last year.

However, caution prevails in the region with concerns about overbuilding limiting development, particularly in Phoenix. Deliveries in the West were down nearly 50% percent year-over-year.

In the Midwest, 4,000 units started during the first half of 2024, representing a decrease of about 40%. Columbus and Kansas City stood out as the region’s strongest performers in BTR construction starts. Completions in the Midwest were trending ahead of 2023 in the first half of this year.