A major shift in the housing market in the last several years is the rapidly increasing popularity of “build-to-rent” homes — single-family homes that are built specifically for the purpose of being rented out.
There’s one other point worth mentioning on corporate BTR projects. Arizona law requires developers that are going to be selling their properties via mortgages to demonstrate a 100 year supply of water available to the residents. Wholly owned BTR developments don’t fall under this regulation, so they can still build.
Not that this will cause any problems in a desert.
This is an extremely interesting and informative essay on a complex topic. Thanks so much for writing it.
Many years ago my wife and I had a home which we rented out. The renters wanted to buy the house but couldn’t immediately afford the down payment. We crafted an agreement where a percentage of each month’s rent was put aside towards and put toward an eventual down payment at a pre-agreed sales price. There were limitations around how many years the renters had to exercise their buy option and the “escrowed” money was non-refundable.
I don’t understand why BTR homes can’t carry similar options. Real estate has traditionally been — certainly for those who stay in their home — a very solid investment. And while the equity market probably has better long term rewards, people don’t have extra cash to invest in the stock market while they do have money to put a roof over their heads.
Skeptics will say the BTR industry will stop building if they have to insert rent-to-own provisions in their lease agreements. I don’t have nearly enough data to run the numbers but I suspect there’s still a healthy profit to be made as I doubt even 10% of renters would stay say, 7 years, and then exercise their option. And BTR owners would still make a strong return on investment.
There was a time when business meant more than scraping every last nickel off the table. Those days are long gone. And given the increasing importance of BTR, particularly in the south, I don’t have any problem with inserting common-sense rent-to-own provisions that might reduce profits very, very slightly to serve the interests of all Americans.
It does feel like there's an obvious solution to the current debate. Instead of requiring these companies to sell homes within a certain number of years, provide tax incentives for them to sell or to provide a rent-to-own option.
Very informative - thanks for writing this post! My wife, kiddo, and I live in a BTR single family attached (i.e., townhouse). We are at a transitional period where we are learning to be parents and don't want to deal with the headache of maintenance. We are lucky in the fact we can afford an average home in our city, we would rather let our 401ks appreciate for a few more years and/or another kid enters the pictures. I'm a fan of BTR, I think we need to get out of the framing that a home is required to achieve the American Dream.
An additional element to this is mom-and-pops exiting the market due to new laws that are hostile to landlords. Many areas have limited the screening you can do while making it very difficult to evict bad tenants. For someone renting out one or two properties as a side hustle, one bad tenant can be ruinous. I know a couple of people who sold their rental properties or converted to short-term rentals (temporary occupants don't have tenant rights) because the risk was just too big. Large institutional operators can spread that risk while operating at higher margins. They also probably have teams of lawyers to navigate the legal system to deal with problems.
The increase in BTR is troubling in that it dovetails with other trends, which would mostly be labeled progressive — though I am not criticizing them for any political valence — that seek to abnormalize or even demonize home ownership. Younger people have picked up on this for, I believe, the progressive connotations, but it's part of a longer and larger effort by governments to: 1. mitigate the desire for home ownership in the wake of decades of inventory mismanagement, 2. increase the dependency of individuals on systems of provision, which are provided by governments and corporations. The push away from the concept of ownership is not accidental.
Let’s nationalize housing development and take out the predatory profit motive. That way we can have well built, affordable homes instead of being atomic profit centers for trillionaires.
Communism is "community ownership". In this country we used to have an analogous idea of the "commonwealth", which - as you know - is still reflected in the charters of four states. That communist countries ended up with a single ruling party was neither intrinsic nor inevitable. Have you even read Marx?
And surely if you're opposed to a monopoly by the state you're opposed to monopoly of capitalist oligarchs. Same problem, different guise.
I remember the apartment blocks on Karl-Marx-Allee where you could see daylight between the prefab panels - well-built, indeed - and that was their showcase.
It's a shame that one of the few topics with clear bipartisan support, that of facilitating the construction of new housing to improve affordability (see link), succumbs to fear mongering surrounding institutional home ownership. You're right to point out the concentration of BTR in certain metro areas and the unclear state of research on whether institutional home ownership drives up house prices, it's a complex issue anyway, but freezing what amounts to 7% of new starts hardly seems like the most straightforward way to deal with the housing crisis.
There’s one other point worth mentioning on corporate BTR projects. Arizona law requires developers that are going to be selling their properties via mortgages to demonstrate a 100 year supply of water available to the residents. Wholly owned BTR developments don’t fall under this regulation, so they can still build.
Not that this will cause any problems in a desert.
This is interesting, thanks.
This is an extremely interesting and informative essay on a complex topic. Thanks so much for writing it.
Many years ago my wife and I had a home which we rented out. The renters wanted to buy the house but couldn’t immediately afford the down payment. We crafted an agreement where a percentage of each month’s rent was put aside towards and put toward an eventual down payment at a pre-agreed sales price. There were limitations around how many years the renters had to exercise their buy option and the “escrowed” money was non-refundable.
I don’t understand why BTR homes can’t carry similar options. Real estate has traditionally been — certainly for those who stay in their home — a very solid investment. And while the equity market probably has better long term rewards, people don’t have extra cash to invest in the stock market while they do have money to put a roof over their heads.
Skeptics will say the BTR industry will stop building if they have to insert rent-to-own provisions in their lease agreements. I don’t have nearly enough data to run the numbers but I suspect there’s still a healthy profit to be made as I doubt even 10% of renters would stay say, 7 years, and then exercise their option. And BTR owners would still make a strong return on investment.
There was a time when business meant more than scraping every last nickel off the table. Those days are long gone. And given the increasing importance of BTR, particularly in the south, I don’t have any problem with inserting common-sense rent-to-own provisions that might reduce profits very, very slightly to serve the interests of all Americans.
It does feel like there's an obvious solution to the current debate. Instead of requiring these companies to sell homes within a certain number of years, provide tax incentives for them to sell or to provide a rent-to-own option.
Very informative - thanks for writing this post! My wife, kiddo, and I live in a BTR single family attached (i.e., townhouse). We are at a transitional period where we are learning to be parents and don't want to deal with the headache of maintenance. We are lucky in the fact we can afford an average home in our city, we would rather let our 401ks appreciate for a few more years and/or another kid enters the pictures. I'm a fan of BTR, I think we need to get out of the framing that a home is required to achieve the American Dream.
An additional element to this is mom-and-pops exiting the market due to new laws that are hostile to landlords. Many areas have limited the screening you can do while making it very difficult to evict bad tenants. For someone renting out one or two properties as a side hustle, one bad tenant can be ruinous. I know a couple of people who sold their rental properties or converted to short-term rentals (temporary occupants don't have tenant rights) because the risk was just too big. Large institutional operators can spread that risk while operating at higher margins. They also probably have teams of lawyers to navigate the legal system to deal with problems.
What’s fascinating is how this connects to a much larger shift happening across the economy.
America increasingly feels like it’s transitioning from an ownership society toward an access/subscription society.
Not just in housing…
but across:
• software
• transportation
• media
• AI infrastructure
• cloud computing
• even future energy systems.
At the same time, the “real economy” is dealing with:
higher debt costs,
reduced affordability,
and consumers increasingly priced out of ownership.
The institutional capital continues accumulating the underlying infrastructure itself:
homes,
data centers,
energy systems,
compute,
utilities.
It increasingly feels like the future economy revolves around
a small number of entities / elites owning the infrastructure…
while the rest of the people simply rent access to it.
The increase in BTR is troubling in that it dovetails with other trends, which would mostly be labeled progressive — though I am not criticizing them for any political valence — that seek to abnormalize or even demonize home ownership. Younger people have picked up on this for, I believe, the progressive connotations, but it's part of a longer and larger effort by governments to: 1. mitigate the desire for home ownership in the wake of decades of inventory mismanagement, 2. increase the dependency of individuals on systems of provision, which are provided by governments and corporations. The push away from the concept of ownership is not accidental.
Do any companies offer a Build to Rent to Buy option?
The Disenfranchisement of the American Citizen continues apace.
Inflation picks your pockets while you sleep. It drives into the poorhouse, steals your birthright and deprives your children of their inheritance.
Somebody is determined to make sure “you will own nothing and be happy,” or else.
All the while, those to whom you are subservient keep you distracted, anesthetized, and oblivious.
Qui bene?
Wake up, America.
Let’s nationalize housing development and take out the predatory profit motive. That way we can have well built, affordable homes instead of being atomic profit centers for trillionaires.
Communism is death. Always will be. You can move somewhere where they do that, OK?
A few people owning everything while the rest of you rent IS communism, bud.
No, it's monopolism. Communism proposes a single owner, which is the state.
This is covered in a good high-school history, economics or civics class.
Communism is "community ownership". In this country we used to have an analogous idea of the "commonwealth", which - as you know - is still reflected in the charters of four states. That communist countries ended up with a single ruling party was neither intrinsic nor inevitable. Have you even read Marx?
And surely if you're opposed to a monopoly by the state you're opposed to monopoly of capitalist oligarchs. Same problem, different guise.
I remember the apartment blocks on Karl-Marx-Allee where you could see daylight between the prefab panels - well-built, indeed - and that was their showcase.
It's a shame that one of the few topics with clear bipartisan support, that of facilitating the construction of new housing to improve affordability (see link), succumbs to fear mongering surrounding institutional home ownership. You're right to point out the concentration of BTR in certain metro areas and the unclear state of research on whether institutional home ownership drives up house prices, it's a complex issue anyway, but freezing what amounts to 7% of new starts hardly seems like the most straightforward way to deal with the housing crisis.