Texas Market for Single-Family Rental Development is Tops

As the built-to-rent trend weathers the same obstacles as the rest of the real estate world, one thing is clear: this “trend” is here to stay.

Dallas-Fort Worth is the No. 2 built-to-rent market in the United States, behind Phoenix, according to Northmarq. Houston ranks third. Austin ranks sixth. In fact, 61 percent of single-family built-to-rent starts in the first three quarters of 2023 were in the South.

The rapid hike in mortgage rates has chilled the housing market, but it’s had a different effect on built-to-rent communities. Some home builders have transitioned homes intended to be sold into rental communities.

Arlington-based D.R. Horton has built thousands of rental homes in the past few years. The volume homebuilder invested $1 billion into the built-to-rent market in 2021. It sold more than 4,000 of them to New York-based Pretium Partners last summer for about $1.5 billion.

Miami-based Lennar launched a $4 billion built-to-rent investment platform in 2021.

Where does high interest rates and low inventory leave many would-be buyers? Renting.

Cost-wise, it makes sense. Factoring in higher mortgage costs, the difference between a mortgage payment and monthly rent on a single-family rental is $828. Single-family built-to-rent units ranged from $2,000 to $2,500 per month, on average, as oxf the third-quarter of 2023.

However, built-to-rent isn’t immune to the effects of the expensive capital environment.

Construction starts slowed in 2023 and will probably continue to do so in 2024. But the market is showing the effects of a previous construction boom. In the first three quarters of 2023, 70,000 single-family rental homes were delivered, up 35 percent from the previous year.

The inventory boom – including competition from multifamily – is already raising vacay rates and causing rents to plateau. But, in Texas’ high-growth markets, robust demand means these new units are still getting leased. DFW, Houston and Austin had a combined net absorption of 5,000 units in the first three quarters of 2023.

Multifamily developer Embrey is populating the Austin-to-San Antonio corridor with single-family rental communities. Embrey recently purchased 74 acres for a built-to-rent community in Schertz. The developer is also planting seeds in North Texas; Embrey is planning a $42 million built-to-rent community near Haslet.

“Despite some stresses, the single-family built-to-rent sector is establishing itself as a core component of the residential housing market,” the Northmarq report said.