THE BENEFITS OF COMBINING BUILD-FOR-RENT AND FOR-SALE SINGLE-FAMILY HOMES WITHIN A COMMUNITY October 12, 2023
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High mortgage rates and last year’s elevated home prices forced some would-be homebuyers out of the DFW housing market. To riff off the adage, “One man’s loss is another man’s gain,” in this case, “The homebuying market’s loss is the rental market’s gain.”
Despite a nationwide 38.2 percent decrease year over year in home sales in December 2022, the DFW region still had the highest increase in population of any U.S. metropolitan area, adding more than 170,000 people according to the most recent census data. So, if people aren’t buying homes, but they are moving to this area, where are they living? For many, the benefits of renting outweighed homebuying, and the recent rise of build-to-rent homes proves it.
Last year, eight of the country’s top ten metro areas for build-to-rent homes hit decade highs for the construction of new homes. Dallas is second highest on that list. With the construction of nearly 2,800 new build-to-rent homes last year, five times higher than the previous year, Dallas sits behind Phoenix for growth of build-to-rent homes in the last five years.
This shouldn’t come as a shock when considering the region’s influx of residents and low unemployment rate—the perfect formula for a robust market. When paired with the high home prices and rising interest rates, consumers and developers are left with opportunity.
For developers, it’s an opportunity to centralize an increasingly high demand for rental properties within a designated locale—most commonly in the suburbs of major cities such as Dallas. The simplicity in design and operation also make it easy for developers to oversee and uphold the rental operations of these properties and align them with the practices applied to conventional multifamily assets. The work we do at ONM Living is a great example. By offering single-family detached and cottage-style rental homes in our communities, we’re able to provide renters with long-term, affordable living solutions to those in any stage of life. We’re also able to meet the unique demands of different markets.
For younger single and newly married consumers, build-for-rent is a low-risk opportunity to get acquainted with the community before committing to a more substantial investment. For older consumers, it’s an opportunity to gain access to the same amenities as single-family homes but with less commitment and reduced upkeep.
Even in a market as healthy as Dallas, the days of double-digit home price increases couldn’t last forever. This past March, DFW home prices fell 1.2 percent from 2022, leading to the first year-over-year decline in the region since 2012. And while lower home prices could certainly help spark more activity in the homebuying market again, it’s going to take time. After all, home prices are only half of the equation. The other half—interest rates—continue to serve as a catalyst for the “wait-and-see” mentality that’s preventing a lot of would-be homebuyers from buying homes.
So, if home prices do start to drop, interest rates remain high, and the demand for build-to-rent properties continues to increase, what can consumers and developers expect heading into 2024? An uptick in homes for sale and build-to-rent properties. What’s less apparent, at least for now, is the benefit of combining build-for-rent homes with for-sale single-family homes in a single community.
For developers, integrating build-for-rent homes into a single-family community helps maximize the potential of a community, specifically by making the most of the available land. Higher renewal rates and easy renovations or correctional work also serve as benefits of combining build-for-rent and single-family homes and by appealing to a wider assortment of clientele, these communities are also better equipped for turnover.
For consumers, the existence of build-for-rent homes and for-sale single-family rentals offers greater flexibility to meet their varying circumstances and housing needs. It caters to those who might not be able to afford a down payment on a home but still want a sense of home ownership that comes with a backyard or those who want to settle down and make a long-term investment in a growing real estate market while still maintaining a heightened sense of community. And the fact that these are all managed properties is just one more benefit and one less thing for consumers to worry about. It’s win-win.
Zac Thompson is the president of ONM Living, a Grapevine-based real estate investment and development firm focused on planning, building and operating rental communities throughout Texas.