More and more people are turning to build-to-rent communities
Dec 28, 2022
By   Internet
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Abstract: Renters looking for more space and privacy but who cannot afford to buy a home are turning to this fast-growing build-to-rent market.

Unlike flat rentals, single-family homes in build-to-rent communities offer the lifestyle of home ownership without the additional maintenance costs or hassles that some call home ownership. Rents for these homes are usually higher than the average flat.

"We had this idea that if you build new homes in a community setting with management, maintenance and amenity packages, just like flats, you might have something quite attractive," says Mark Wolfe, CEO and founder of AHV Communities. The company was one of the first to develop, build and operate luxury, single-family and attached home rentals.

Since 2013, AHV has managed nine communities in Colorado, Texas and Washington State, with six more under construction in Texas, Alabama and California.

These communities feature brand new homes with quality finishes, as well as a garage and a yard. Residents also have access to the community's fitness centre, clubhouse and on-site management and maintenance.

It is the low barrier feature of these 'build-to-rent' communities that is attracting a large number of millennial renters and empty nesters looking for a single-family home without the burden of home ownership.

In a survey by real estate consultancy Zonda, about 95 per cent of millennials want to own their own home. However, as of November, the national homeownership rate stood at 66 per cent.

"When we asked why [millennials] rent, four of the top five reasons were related to affordability," said Ali Wolf, chief economist at Zonda.

Devin Bachman, senior vice president of research at John Burns Real Estate Consulting, said that in today's market, demand for build-to-rent homes remains high due to rising mortgage rates.

According to Freddie Mac data, interest rates on 30-year fixed-rate loans are averaging about 6.3 per cent, up sharply from about 3 per cent at the beginning of the year.

"Owning a home is more expensive now than ever before," Bachmann said.

For example, owning a three-bedroom, two-bathroom home in San Antonio, Texas, with a 5 per cent down payment, a 30-year fixed-rate mortgage (including principal, interest, taxes and insurance), and mortgage insurance and maintenance assumptions, costs about $2,800.

By comparison, AHV Communities rents three-bedroom, two-bathroom duplexes in San Antonio's Farm Haus build-to-rent community for $2,200 (1,365 square feet) to $2,400 (1,415 square feet) per month.

Wolf added that rental prices in each AHV-owned community are determined by the number of amenities, layout and the local rental market.

Home ownership has long been a way for people to be able to build wealth over time that can be passed on to future generations. However, the country is in the midst of a severe housing shortage, resulting in high prices and not enough properties to allocate.

These high prices and a change in attitude have made it easier for people to accept long-term renting - if not forever.

Nevertheless, the current state of the housing market does not mean that home ownership will never be possible.

The Home Builders Association's Dietz points out that the US Federal Reserve will not keep raising interest rates forever, and at some point mortgage rates will drop below 6% again. When that happens, the demand for homeownership will likely increase again.

"We want to focus on getting families to own homes. It makes for better citizenship and wealth accumulation," Dietz said.

But Bachmann, of John Burns & Company, said what build-to-rent communities offer is an alternative housing solution.

"A lot of people would rather live in that [housing] than in an [flat or condominium building] that they have to have someone next to or above them," she said.