More built-for-rent single-family homes are being constructed in the U.S., according to the National Association of Home Builders, and experts say this is in part due to the housing affordability crisis.
"When mortgage rates move higher, and it's harder to buy a home, renting becomes more of an option," said Robert Dietz, chief economist at the NAHB.
Construction began on about 18,000 single-family, built-for-rent homes in the first quarter of 2024, a 20% jump compared with the first quarter of 2023, according to NAHB, which analyzed data from the U.S. Census Bureau's Quarterly Starts and Completions by Purpose and Design.
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"People need somewhere to live, and they have a choice to make," said Molly Boesel, principal economist at CoreLogic, a real estate data firm.
"And if they can't find what they need in the for-sale market, they're going to go to the rental market," she said.
'We are seeing this growing move'
As a share of all housing starts, single-family built-for-rent starts grew to 10% in 2023 from 5% in 2021, almost doubling in two years, according to the National Association of Realtors, which analyzed data from the Survey of Construction Data by the U.S. Census Bureau.
Single-family built-for-rent starts grew to 90,000 units in 2023, up from 81,000 units in 2022, the National Association of Realtors reported.
"We are seeing this growing move towards having built-for-rent properties in the U.S.," said Jessica Lautz, deputy chief economist at the NAR.
The growing share of built-for-rent single-family homes is a response to demand from "people who can't afford today's very expensive, out-of-reach housing market," Lautz said.
Homebuyer affordability declined in April, according to the Mortgage Bankers Association's Purchase Applications Payment Index.
NAHB's Dietz said builders are noticing "an expansion" among renters in their 30s and 40s.
Young adults are interested in built for rent "as a growing share who can't afford to purchase a home today," Lautz said.
"[They] have to turn to rental properties because there is no alternative," Lautz added.
With the shortage of homes for sale, "potential buyers either can't find what they're looking for or it's too expensive," Boesel said.
And with mortgage rates still close to 7%, monthly mortgage payments are pretty high, she said, "keeping a lot of potential buyers in rentals."
"And if they're at the stage of life where they would rather be in a single-family home, a detached single-family home is going to be the next best thing," she said.
Rent or buy?
The typical asking rent price for a single-family home in May was $2,262, a 4.7% increase from a year prior, according to Zillow. To compare, the rent price in a multifamily building in May was $1,896, up 2.6% in the same time frame, the real estate website found.
The national median mortgage payment applied for by purchase applicants was $2,256 in April, up $55 from March, according to the Mortgage Bankers Association. It is up $144 from one year ago, a 6.8% increase.
But keep in mind that a mortgage payment will depend on several factors, such as the size of the down payment and the interest rate.
Homeowners are also responsible for shouldering "hidden costs" that aren't figured into a mortgage payment, such as maintenance, repairs, taxes and insurance.
As people consider their options, they need to understand what a realistic budget looks like. Also think about how long you plan to live in the home or if that house will fit your needs in the near future, Lautz said.
Find out what your true expenses and responsibilities will be as a single-family home renter. Ask the same set of questions that you would if you'd rent an apartment, Dietz said.
Also, it's important to find out who is responsible for the upkeep of the property outside the home, such as the yard work, said Dietz. Typically, those tasks are covered by the property owner, but it can vary, he said.