The ‘built to rent’ boom: When builders shift to single-family rentals, who wins?
It’s become nearly impossible for first-time homebuyers to afford a starter home in Fort Worth.
But with a new product quickly gaining traction across the Sunbelt, those with their sights set on living in a starter home have another option.
This story is a subscriber exclusive
They can rent one.
“Built to rent” communities are being positioned as an answer to the conundrum: I can’t afford a home, but this apartment is too small.
These communities, also called “horizontal apartments,” look like your average starter-home neighborhood. Identical rows of single-family homes or duplexes with modest manicured lawns lining a freshly paved street. There might be a community center, and sometimes there’s a pool.
In 2021, about 95,000 built-to-rent units were constructed around the county, estimates Brad Hunter, owner of Hunter Housing Economics, a market advisory firm.
In fact, Dallas-Fort Worth ranks third nationally in the number of single-family rentals.
Hunter predicts about 120,000 built-to-rent units will be constructed nationwide this year, a 33% increase over 2021.
That’s just the beginning, he estimates.
As interest rates start to rise, putting homeownership more out of reach for first-time buyers, the built-to-rent product is a trend that’s expected to stay. But, it might be a bigger boon for builders than renters.
Finally, an alternative
Between April 2021 and April 2022, the median home price in Fort Worth rose 28.6%, from $276,000 to $355,000.
Meanwhile, inventory remains perilously low — April marked six months of inventory below one month in Fort Worth — and mortgage rates are creeping up. The jump in interest rates has increased payments on a $350,000 mortgage by more than $500 a month.
“Unfortunately, I think we’re about to enter a period of time when it’s going to be even harder than ever for young families to purchase a home,” said Hunter.
In the same time period, rents in Dallas-Fort Worth were up 17.3%, according to data from ApartmentData.com.
So, renting is getting more expensive, but not at the same clip.
The economics of the housing market are “are forcing people to say, ‘What are the alternatives?’” said Hunter.
“Built to rent” is the industry’s response to today’s market, and it’s a windfall for builders and investors.
“In fiscal 2022, we expect our rental operations to generate more than $700 million in revenues from rental property sales,” Mike Murray, executive vice president at home builder DR Horton, said during an earnings call in November 2021.
At that time, DR Horton announced it plans to invest an additional $1 billion in single-family rentals.
ONM Living, the built-to-rent home builder under the umbrella of builder HistoryMaker, has seven projects in various states of development throughout Dallas-Fort Worth and one in the Houston area. In total, the projects will provide about $650 million in asset value.
“They’re in the growth corridors of the Metroplex,” said HistoryMaker CEO Nelson Mitchell. “I think certainly with some of the rental products, you can’t go to the total periphery. You need to stay a little bit closer in.”
The ONM Living developments are (or will be) in spots like Burleson, Hurst, Lewisville and near Eagle Mountain Lake.
Who are the renters?
The Cottages at Bell Station, a built-to-rent community in Hurst, offers a housing solution for a diversity of renters.
There’s a 72-year-old woman going through a divorce; a woman who moved to the area after getting a job at DFW Airport with American Airlines; and a newly married millennial couple who wanted more space for their golden retriever, Maverick.
In fact, canines make up a pretty large contingent of built-to-rent residents, as the community offers extra green space, a sizable dog park and even private yards for some units.
Typically, a one-bedroom unit in a built to rent community will be more expensive than a one-bedroom unit in an apartment complex. But, in price per square footage, built to rent is a bigger bang for your buck.
There are plenty of reasons renters might opt for built to rent, like the convenience of renting. Or perhaps they are still saving for a down payment.
Some of ONM Living’s communities cater to folks in this situation, said Mitchell.
Those communities might combine homes for sale as well as rental products, with the goal that “one day they’ll be able to purchase a home with HistoryMaker.”
While built-to-rent renters of course do not own their homes, Nelson and Hunter said they’re good stewards of their neighborhoods, contrary to the fears of nearby owner neighbors.
“People who are moving into these rental homes grow roots,” said Hunter. “They don’t come in for one year. They’re staying for longer, for several years. They’re not transient by and large, and that’s a big factor.”
The Cottages at Bell Station was constructed by ONM Living in Hurst and sold to MBP Capital in April.
That’s often what happens. A builder constructs a built-to-rent community and, upon completion, offloads it to a property management company.
So, residents of these rental communities have access to amenities like pools and dog parks and can expect to have their lawn mowed and their washing machine fixed when it breaks.
But, unlike homeownership, this arrangement can put renters at the mercy of a distant management company.
Kendri and Ruby Bennett moved to the Cottage at Bell Station before the community was sold in April.
The company raised their rent by $500 a month, the Bennetts said. They’ve also had trouble with online rent payment system the company uses.
“A lot of people are moving out,” said Kendri Bennett. “A lot of people are breaking their leases. Like, I’m about to break mine.”
Another resident of the community said the rent is manageable, but she’s saddled with fees: the pool fee, the trash fee, the fee she had to pay when the management company’s direct deposit didn’t work and her rent was late, the interest charged with the late fee, the credit card processing fee levied for paying rent online.
She’ll have to find something cheaper when she retires, she said.
MBP Capital did not respond to a request for comment.
The future of built to rent
While built to rent is touted as an product that will help affordability, renters paying $2,000 a month for a two-bedroom home could struggle to save up for a down payment for a similar home.
“My mortgage, for example, for a comparable-sized home is a fraction of that,” said Josh Roberson, a data analyst at the Texas Real Estate Research Center.
But, experts agree, as home prices and rents grow, increased supply will help the frenzied housing market — no matter the product.
“I think we’re going to look back at this period and say, ‘Why didn’t this happen earlier?’” Hunter said.
This story was originally published July 8, 2022 5:00 AM.
Jess Hardin covers growth and development. After graduating from Georgetown University, she completed a Fulbright grant in Georgia (the country) and did a brief stint of federal service in whistleblower protection. Jess comes to Fort Worth after helping launch digital news start-up Mahoning Matters in the wake of the closure of The Vindicator in Youngstown, Ohio. Send tips to firstname.lastname@example.org or via Twitter to @jesslhardin.