Are Assumptions Regarding Build-to-Rent Community Price Premiums Justified?

Build-to-rent communities have become increasingly popular over the last several years, with the BTR sector gaining momentum based the key assumption that BTR properties cost less to maintain while commanding a rent premium over scattered site single-family rentals. This premium is attributed to newer construction, better amenities, and centralized services. However, a recent report from housing data provider Parcl Labs challenges that assumption.

Parcl Labs' study looked at B2R versus scattered site rentals across the U.S. from January 2020 to July 2024 and found that, contrary to expectations, B2R properties generally underperform scattered site rentals in terms of price per square foot. Nationally, scattered site rentals have a 7.3% premium over B2R properties. As of July 2024, scattered site rentals command a premium in seven out of eight major U.S. housing markets, with Houston being the only market where B2R outperforms, with a 4.3% premium.

As the BTR sector matures, it's important to reexamine these assumptions. Our research focuses on a critical question: Are BTR properties achieving the expected rent premium?

Recent market shifts add weight to this question. Our previous BTR supply analysis shows many top markets with high institutional ownership experiencing increased conversion of new single-family homes into rentals. This surge in supply means increased competition. With many investors simultaneously adopting the BTR strategy, the early-mover advantage can quickly erode as similar products enter the market, potentially exerting downward pressure on prices.

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