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More single-family homes being built for rent are being built in the U.S., according to the National Association of Home Builders, and experts say that’s partly 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 NAHB.
Construction began on approximately 18,000 single-family homes built for rent in the first quarter of 2024, a 20% increase compared to the first quarter of 2023; according at NAHB, which analyzed data from the US Census Bureau’s Quarterly Starts and Completions by Purpose and Planning.
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“People need somewhere to live and they have a choice to make,” said Molly Boesel, chief economist at CoreLogic, a real estate data company.
“And if they can’t find what they need in the sales market, they’ll go to the rental market,” he said.
“We’re seeing this growing movement”
As the share of all housing starts, single-family starts rose to 10% in 2023 from 5% in 2021, nearly doubling in two years, according at the National Association of Realtors, which analyzed data from the U.S. Census Bureau’s Construction Data Survey.
Single-family rental starts rose to 90,000 units in 2023, up from 81,000 units in 2022, the National Association of Realtors said.
“We’re seeing this growing movement toward acquiring build-to-rent properties in the U.S.,” said Jessica Lautz, deputy chief economist at NAR.
The growing share of single-family homes being built for rent is a response to demand from “people who can’t afford today’s very expensive, unaffordable housing market,” Lautz said.
Affordability for home buyers decreased in April, according to the Mortgage Bankers Association’s Market Application Payment Index.
NAHB’s Dietz said builders are seeing “an expansion” among renters in their 30s and 40s.
Young adults are interested in renting “as a growing share who cannot afford to buy a home today,” Lautz said.
“[They] they have to turn to rental properties because there is no alternative,” added Lautz.
With a 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 staying close to 7 percent, monthly mortgage payments are quite high, he said, “keeping a lot of potential buyers in the rentals.”
“And if they’re at the stage in life where they’d rather be in a single-family home, a single-family home is going to be the next best thing,” he said.
Rent or buy?
The typical asking price for a single-family home in May was $2,262, up 4.7% from a year ago; according on Zillow. By comparison, the rent price for an apartment building in May was $1,896, up 2.6% over the same time period, according to the real estate website.
The National average mortgage payment Purchase requests from applicants were $2,256 in April, $55 higher than in March, according to the Mortgage Bankers Association. It’s up $144 from a year ago, a 6.8% increase.
But keep in mind that your mortgage payment will depend on several factors, such as the size of the down payment and the interest rate.
Homeowners are also responsible for “hidden costs” that aren’t factored 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 consider how long you plan to live in the home or whether this home will fit your needs in the near future, Lautz said.
Find out what your real costs and responsibilities will be as a single-family home renter. Ask the same questions you would if you were renting an apartment, Dietz said.
It’s also important to find out who is responsible for maintaining the property outside the home, such as yard work, Dietz said. Typically, those jobs are covered by the property owner, but they can vary, he said.
