From the Desk of the CEO
I had a great time at the 8th Annual Build-to-Rent, Land & Homebuilding Forum last week. Thanks again to everyone at the Information Management Network for putting together a great conference. And a big thanks to my fellow panelists for a really thought-provoking discussion.
Here are a few of the key takeaways that I had, starting with the macro:
Stagflation is a growing-likelihood scenario
The market has now come around to believing that the fed will hold its course and that rates will stay higher for longer. This will make for a challenging environment going forward, especially if growth slows, employment softens, and stagflation takes hold as a result.
With that said, it’s worth noting that predicting the direction of the economy is challenging and involves a high degree of uncertainty. Many factors can contribute to and influence economic growth, inflation, and employment levels. Offhand I can think of a few areas, including government policies, global events, and technological advancements, among others. Something to keep an eye on, nonetheless.
There is reason for optimism regarding the longevity of build-for-rent housing
Tailwinds in the build-for-rent sector include 1) the supply/demand imbalance, 2) the necessity for – more – housing, and 3) an affordability factor for would-be buyers/renters. These all continue to be exacerbated by a higher-for-longer fed rate policy stance.
Investors are also showing more interest in build-for-rent as a way to diversify their portfolios and generate steady income. Unlike traditional SFR rental properties, build-for-rent housing offers economies of scale, streamlined management, and lower operating costs. Likewise, policymakers are recognizing its benefits in addressing housing affordability and supply issues. By encouraging the construction of purpose-built rental housing, they can increase the overall supply of rental units and potentially stabilize rental prices.
Build-for-rent has emerged as its own asset class
We’ve already seen the institutionalization of build-for-rent as an asset class, but only a small percentage (less than 8%) of all BFR is owned by institutions. As time progresses, more capital will flow into the sector which will make it more desirable and efficient from a capital markets perspective.
The emergence of build-for-rent housing as an asset class has led to the development of new financing and investment products that cater specifically to this market segment. This includes real estate investment trusts (REITs), private equity funds, and other vehicles that allow investors to access this growing market. And debt providers are following suit.
A preference for build-for-rent over traditional for-sale housing?
Historically the American dream has included buying a home, but that’s entailed a 30-year mortgage with monthly payments. BFR accomplishes or exceeds the utility of a new home with monthly payments, but with flexibility (both perceived and actual) of being able to move when it is desired. And the resident has the added benefits of better amenities and custom BFR home-design features that don’t exist in traditional for-sale housing. Seems like a no-brainer decision for the consumer.
However, encouraging build-for-rent housing as a preference over home ownership will require a concerted effort by policymakers, industry leaders, and communities. They’ll need to increase awareness by encouraging more dialog, continuously iterate amenities to properly cater to demand, address affordability, and tackle regulatory barriers.
Chief Executive Officer