Build-to-Rent Communities surge in Phoenix amid High Home Interest Rate

Rising interest rates are making it difficult for individuals to purchase homes. The Maricopa Association of Governments’ June 2023 housing update identified 256,000 households in the Phoenix metropolitan statistical area as “severely cost-burdened,” meaning they spend more than 50% of their income on housing.

2023 report from Northmarq, which specializes in commercial real estate, pointed out that Phoenix has been a top market for single-family rentals and “absorption spiked to more than 3,600 units in 2023, doubling the annual average from the preceding five-year period.”

According to the report, the average rent on a single-family, build-to-rent unit in the U.S. is $828 per month lower than the average monthly mortgage payment on a median price single-family home.

Creating diverse options for housing enables people to choose what best suits their lifestyle.

Mark-Taylor has managed over 35 new BTR communities – more than 6,000 units – since 2017. Many BTR communities are being built in the West Valley because the rural landscape provides more room for the communities.

The cost to buy versus rent in the United States has not been this out of whack in most people’s lifetimes since back to maybe 1980.  From an economic side, it really serves the needs of a resident that is ready to move into a different phase of life or looking for those levels of comfort. 

In the last economic down cycle, there was a large “shadow market” of homes that were swooped up by investors and rented off-market. Individuals were renting homes in neighborhoods that weren’t professionally managed. As some of those homes turned to foreclosure, it became a “scary prospect to lots of renters.”

In the current economic down cycle,  Mark-Taylor is avoiding that trend by offering the build-to-rent housing option.

The completion of BTR units increased in 2023, and new construction resulted in higher vacancy rates and a plateau in rental rates. Vacancies in Phoenix ended the third quarter of 2023 at 7.7%, higher than the market’s apartment vacancy rate, according to the Northmarq report.

Though new supply growth is outpacing new demand, single-family homes remain popular with renters.

The Northmarq report expects the BTR property class to remain in “growth mode” into 2024 as the high cost of buying a home continues to push people toward more affordable single-family rentals. Though obtaining financing for future development presents a challenge, projects already underway will significantly boost inventory levels across dozens of markets, according to the report.

While the future of the BTR sector faces some headwinds, here to stay.

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