By SCOTT KIMBLER
Metropolitan Atlanta is the largest housing market in the Southeast and the city is leading the country in the trend of neighborhoods being built solely for the purpose of renting out single-family homes.
This trend appears to be new as corporate investing in real estate has grown exponentially in recent years, but it has roots dating back to the 2008 housing crisis, according to Assistant Professor Rohan Ganduri of Emory University’s Goizueta Business School.
“There were a lot of properties that were foreclosed upon,” Ganduri said. “That is when a large number of institutional investors stepped in and started to buy up a large number of single-family properties at very cheap prices. What they ended up doing with these properties was fixing them up and putting them back out into the market as rental properties. That has now evolved into companies (and individuals) building new homes solely for the purpose of renting them out.”
Ganduri said these neighborhoods are more akin to living in a free-standing apartment than in a traditional single-family neighborhood. And that provides money-saving options for consumers as they prepare for homeownership.
“This is for people who cannot afford to buy a home because they do not have the 20% down for their own mortgage. If the current situation that we are in right now is any indicator of the future, this can be a trend in housing that we may see for a long time to come,” Ganduri said.
Brian Hodges is a senior attorney with Pacific Legal Foundation, a West Coast nonprofit legal foundation that fights governments on behalf of people they feel are being discriminated against.
Hodges says Atlanta and Pheonix appear to be the two largest markets where build-to-rent homes are growing in popularity. He expects the idea will catch on in other parts of the United States and would personally like to see the practice become more popular on the West Coast where the cost of property is high.
Hodges said BTR neighborhoods have a niche to fill and seem to be ideal for Generation Z as well as older people.
“For there to be a healthy housing market, we need housing of all types across all price points,” Hodges said. “BTR is a niche market, typically it replaces first-time homeowners or people moving into suburbs. When you have more units and you have more options, it frees up more units. So, it is not a solution to the housing crisis, but it is part of the solution.”
He went on to explain the BTR neighborhoods are putting a rung on the housing ladder that has not been in place for a few years now.
“Anyone who has been in the housing field has seen that the American Dream of homeownership has been changing,” Hodges said. “This provides an opportunity to have access to a single-family home and to provide that type of living for a young starting family. I don’t think it going to go away because even if supply catches up, the prices are high. Even if the interest rates go down, it is going to take a very long time for interest rates to return to where they were.”
Hodges said for there to be a functional housing market – for people to live the American Dream – there has to be options to move up.
“If rungs are missing, the step out of an apartment to a single-family home is beyond the reach of a lot of people. So, anything that provides a rung in that ladder is good for the market because as people move up and out of say, a nice apartment, that becomes available for people who were in maybe not-so-nice apartments or apartments that are farther away. A healthy housing market has to have movement because you have to have new supply coming on board, but you also have to have old supply coming back on the market,” Hodges said.
Build-to-rent neighborhoods are not without opposition.
The city of South Fulton, GA, has an ordinance in place (though it is facing legal challenges) that homes cannot be built for the sole purpose of being rented out. Harris and PLF feel the legal challenges may prove successful because the ordinance appears to strip property owners, be it a corporation or an individual, the opportunity to do with a property as they see fit.
Other areas of the metro area do not seem to be throwing up much of a barrier and appear to have embraced the concept and the property usage. Representatives of both Gwinnett and Hall County have stated the usage does not affect the tax value of the home as they are appraised the same as a resident-owned home and the owners of said properties pay taxes.
Both Hodges and Ganduri point out there are also fears that come from surrounding homeowners who express concern that rental properties translate into properties that are not taken care of. But these neighborhoods are managed like HOA and multi-unit apartment complexes. The grounds are taken care of and, in most cases, there are also strict rules about how appearances are supposed to be kept and the number of automobiles that can be in a driveway at once.
So these neighborhoods, many of which include amenities like pools and tennis courts, come with hefty guidelines. Hodges feels because of this people’s fear of dropping values due to nearby renters just will not play out quite that way.
As the average cost for a mid-level apartment can be around $2,000 per month in the metro, rent for some of the BTR neighborhoods are starting at around $2,500.
Rick Pollack, managing director of RCLCO Fund Advisors, said in a recent webinar that it is still early in the game for this housing sector but it has a bright future.
“Build-for-rent deliveries last year were about 10% to 15% the size of multifamily deliveries and that was a record year for build-for-rent that generated a lot of press about how many of these homes were being delivered, and it’s still just kind of a drop in the bucket compared to traditional multifamily,” Pollack said during the webinar.
Pollack added although build-for-rent is a niche sector right now, he predicts that in the long term, there will be stronger rent growth in single-family homes than in multifamily housing.
“Looking forward, we still expect there to be really strong demand for this product and that is going to drive really strong rent growth,” Pollack said.
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