The rise of build-to-rent communities: A solution to America's housing crisis?

While many Americans wait for potential relief in the housing market, some real estate developers are taking advantage of the high demand within the market and investing in "build-to-rent" neighborhoods, which consist of full-size homes available for rent.

Build-to-rent homes are at an all-time high, according to RentCafe's analysis of Yardi Matrix data. In 2021, 9,978 homes were built and that number jumped to 15,691 in 2022. Last year, over 27,000 new build-to-rent homes were constructed — the most being in Phoenix, Dallas and Atlanta.

The National Association of Home Builders said build-to-rent homes are a good option for people who can’t afford to buy a home or people who tend to move around a lot for work.

"Homeownership is typically the most important wealth accumulation for families," Robert Dietz, the chief economist for the National Association of Home Builders (NAHB), said. "From a policy perspective, building more housing that provides homeownership opportunities is absolutely the best option, but that shouldn't take away from the fact that for some households, the best option for them may be renting."

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Sarra Muqaddam-Grayer and her family of four moved from Michigan to Minnesota last year. Her family looked for other housing options but didn’t want to be crammed into an apartment with two teenagers, which led them to a build-to-rent neighborhood in Woodbury, Minnesota.

"These types of communities have definitely stepped up the game of renting instead of owning, because some people just don't have the ability to take care of a home like that anymore," said Muqaddam-Grayer, who is now the property manager for two build-to-rent communities.

Muqaddam-Grayer was looking for a job in her new area when she was hired by Ian Peterson, president and owner of Integrate Properties, LLC. Peterson was working with an equity group out of Chicago when he heard about the build-to-rent trend.  

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"I thought it was absolutely crazy," Peterson said. "Nobody's going to pay that kind of money for renting a home." 

To his surprise, people did pay for it. His property, The Preserve at Albertville, has homes with rent ranging from $2,700 to $4,200 a month.  

The neighborhood includes a pool, clubhouse, gym and dog park. Management also handles any maintenance issues or yard work. 

"Whether it's here in Minnesota, Tennessee, Colorado, Texas, it's almost the same demographic. We get about a third empty nesters, about a third millennials and then we get about a third [of] what we call 40-somethings," Peterson said. 

The 40-somethings either relocate for a job and want to explore the area before they purchase, or it’s a divorce situation where they need to stay in the same school district, Peterson explained, adding that he specifically targets areas with good school districts.

"A typical apartment complex will average 50% to 55% turnover on an annual basis, and really in these types of communities, we average between 35% to 40% turnover," Peterson said. "It's really capturing folks, giving them the luxury lifestyle that they want, and they don't have a reason to leave. And so, they get to know their neighbors. They're all friends."

Peterson said they have put a pause on building additional properties until interest rates go down, but there are three more communities lined up that could potentially start construction in the late fall.

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Dietz said these communities are a good option for people who are saving money for a down payment to purchase a home and people who move around a lot for work or prefer to be more mobile. He also said the communities benefit the renters, too.

"It makes them more likely to vote, to get more involved in the schools, they volunteer more," Dietz said. "And the most important of those is higher wealth accumulation."

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The NAHB said housing affordability should improve when the Federal Reserve begins to cut rates.