During the third quarter of 2024, the construction of single-family homes built for rent saw a notable increase compared to the previous year. Builders aimed to provide more rental options as mortgage interest rates remained high.
Data from the National Association of Home Builders shows that around 24,000 single-family built-for-rent (SFBFR) homes were started in this period, marking a 41% rise from the third quarter of 2023. Over the last year, 92,000 SFBFR homes began construction, which is over a 31% increase from the 70,000 starts in the previous year.
This market offers more housing options amid challenges like affordability and high down payment requirements in the home-buying market. Many people are now looking for homes with more space and prefer single-family structures. Although SFBFR homes differ in size and features from other new single-family homes, interest from investors has declined due to rising interest rates. Still, builders are continuing to construct rental homes.
This market segment is relatively small, so changes from quarter to quarter are often not significant. Nevertheless, the current four-quarter average market share is 9%, which is higher than the historical average of 2.7% from 1992 to 2012.
It’s important to note that this analysis only includes homes built and held by builders for rental purposes, excluding those sold to others for rental use, which may account for an additional 3% to 5% of starts. The investor market for these homes has also slowed down recently due to higher interest rates.
Recent Census data indicates that a growing percentage of single-family homes are being built as condos, averaging over 4% in recent quarters. Some of these may be rentals, but not all. There is also a possibility that some built-for-rent units are categorized as multifamily homes because they are often constructed on a single plot of land. However, checks by the NAHB have shown no signs of this issue.
After the Great Recession, the number of built-for-rent homes increased as homeownership rates fell. The market share for SFBFR homes may be small, but it has clearly grown. Given the ongoing affordability issues in the home-buying market, the SFBFR segment is expected to maintain a strong market presence as overall construction increases in the future.