In recent years, the U.S. housing market has become a tough place for many would-be homeowners. Surging home prices and elevated mortgage rates have priced them out, making homeownership seem like an impossible dream.
Therefore, renting is becoming the only realistic choice for more and more people. This has caught the attention of big investors on Wall Street, who are now pouring billions into a new housing trend: build-to-rent homes.
One example is AvalonBay Communities, a major real estate investment trust (REIT), which recently purchased 126 build-to-rent townhomes in Bee Cave, Texas, for $49 million. Although it’s a small addition to its overall portfolio, AvalonBay plans to invest over $1 billion in the build-to-rent market in the years ahead.
It views this as the start of a new, growing asset class that will meet the rising demand for upscale rental homes in sought-after areas.
The build-to-rent concept is simple: developers build single-family homes specifically for renting, not selling. These communities are designed to appeal to renters and offer amenities like pools, gyms, backyards, and easy access to top schools. This makes them especially attractive to young families who can’t afford to buy a home but still want a quality living space.
Why Renting is Becoming the New American Dream
For many Americans, the dream of owning a home is slipping away. With home prices climbing and mortgage rates around 7%, buying a house is becoming impossible. As home prices soar and the average monthly mortgage payment is now 38% higher than apartment rents, renting has become a more affordable and practical choice.
That is particularly so for millennials, many of whom are in their prime years for buying homes but can’t afford to live in the suburban areas where they want to raise families.
As more people choose renting, the build-to-rent market is flourishing. From 2021 to 2023, the share of new build-to-rent homes doubled, making up 10% of all new single-family homes. Major investors like Blackstone, Invitation Homes and Pretium Partners are investing heavily in this market, building entire communities of rental homes to meet the needs of the swelling number of renters.
The Growth of the Sunbelt
Build-to-rent developments are growing fast in the Sunbelt, a region that includes Texas, North Carolina and Florida. These areas are attracting more workers and there is a high demand for housing, especially in suburban neighborhoods with good schools and easy access to jobs.
AvalonBay, for example, is focusing its build-to-rent projects in cities like Austin, Texas, and Raleigh-Durham, North Carolina. The availability of land in those areas makes it easier and cheaper for developers to build rental communities.
Unlike traditional apartment complexes, build-to-rent homes offer tenants the suburban lifestyle with the convenience of renting. The communities usually have larger homes with private backyards, garages and modern amenities that renters typically associate with owning a home. For example, AvalonBay’s townhomes in Bee Cave come with balconies, patios, a communal pool and a gym—features that appeal to families who want an upscale lifestyle without the responsibilities of owning a home.
A Double-Edged Sword
Although build-to-rent developments may help tackle the housing shortage, they also bring hurdles. Critics argue these developments take attention away from the home-buying market, where more supply is needed to stabilize prices.
In places like the Sunbelt, where demand is already high, homes that could have been sold are instead being built just for rent, making it even harder for prospective buyers to find homes.
Some economists like Moody’s Ermengarde Jabir warn this trend could worsen the affordability crisis by reducing the number of homes available for purchase. Instead of new housing being available for buyers, it is being redirected to build-to-rent projects, he says.
Regulatory Concerns
As institutional investors continue to take over the build-to-rent market, government regulators are paying close attention to the growing power of large landlords. For example, Invitation Homes, the biggest single-family rental operator in the U.S., recently settled for $48 million with the Federal Trade Commission over unfair rental pricing and eviction practices.
Critics like Ruth Jones Nichols, a former housing official under the Biden administration, worry the rise of corporate landlords could give way to more evictions and less stability for renters.
AvalonBay, however, argues its build-to-rent developments are not competing with people trying to buy homes. We are not competing with individuals trying to buy homes in the private market, says Matt Birenbaum, AvalonBay’s Chief Investment Officer.
The company says its rental properties provide an alternative to the high cost of homeownership, not a replacement for it.
A New Reality for Renters and Buyers
The rise of build-to-rent communities shows the traditional American dream of homeownership is changing. Though renting may not provide the long-term financial benefits of owning a home, like building equity, those rental communities offer a strong option for people who can no longer afford to buy.
As big investors continue to invest billions in the build-to-rent market, the future of the housing market is uncertain. Will these developments help solve the affordability problem or will they widen the gap between renters and homeowners?
One thing is certain, though: Wall Street is making big bets on rental homes to meet the growing demand.
