SFR, BTR Are Just Beginning to Boom

“We’ve not seen a boom-bust market in BRF/SFR because it is yet to be overbuilt.”

Anyone thinking that interest in the build-for-rent (BFR) or single-family-rental (SFR) markets were declining needed only to see the huge, overflow crowd for a session on the topic at the ULI Spring Conference on Wednesday in San Diego.

Dori Nolan, SVP, client services, Berkadia and Jeff Coles, VP client services, Berkadia led the standing-room-only audience through a demographic and performance summary of the growing sector.

Investor interest has skyrocketed in the SFR/BFR space, especially among institutional investors. There have been $50 billion investor and capital transactions in the space since 2020.

“Pre-sales for BFR/SFR are occurring,” Coles said. “So, their popularity remains even as many are still trying to figure out this industry. We’ve not seen a boom-bust market in BRF/SFR because it is yet to be overbuilt.

“Agency lenders have become friendly to BFR/SFR except in the case of scattered site managed portfolios, which rely more on traditional financing.”

Coles said states with the greatest population growth are the most primed for BFR/SFR housing. They include Florida, Texas, Utah, Nevada, Montana, Arizona, Idaho, North Carolina and South Carolina.

SFR Attracts ‘Stickier’ Residents

There are approximately 47 million renters in the US and 15 million live in single-family rentalsor about 32 percent.

Institutional investors and developers are flocking into this space and there is still plenty of room to grow. Developers expect BFR homes will reach a double-digit share of new construction by 2024, compared to its 6 percent today.

Persons ages 25 to 44 comprise about 48 percent of the single-family renters and overall, these renters average about $100,000 in annual income, which rates higher than the approximate $72,000 that Class A renters earn, according to RealPage.

“Single-family renters tend to be more educated and have better credit ratings,” Nolan said.

SFR/BFR tenants are “stickier renters” who tend to stay longer than the traditional multifamily renter. Limited turnover keeps operators’ expenses lower.

Looking Over the Next Decade

Over the next decade, the SFR/BFR market will be popular among Millennials on the verge of parenthood, aging Baby Boomers and remote workers, Nolan said, adding that strong demand drivers and an undersupply of rental homes will boost rental growth.

Higher interest rates will slow single-family sales, especially among entry-level homes, she said. This coupled with limited inventory for sale will keep would-be buyers priced out of the single-family market and keep them in the renter pool. 

Among the top markets for YOY SFR rent growth, Dallas, Austin and Las Vegas had the largest spread between SFR and multifamily rent, based on data from RealPage and JBREC. For example, SFR in Dallas-Fort Worth is averaging $1,892 vs. $1,421 in apartments.

New lease effective rent YOY growth is greatest in Phoenix at 11.4 percent followed by Charlotte at 10.9 percent and Las Vegas at 10.3 percent. The national average is 4.2 percent.

Surveys of those who seek build-for-rent properties suggest that onsite maintenance (61%) and a pool (50%) are the values that come with this form of living.

Top amenities include the kitchen, washers/dryers, finishes, fenced yards and walk-in closets.