Millennials Forgo Homeownership and Boost Rent-to-Build Market

With homeownership increasingly out of reach, many millennials are turning to high-end rentals.

Developers are in a hurry to meet that demand even if it means constructing fewer homes to sell, The Wall Street Journal reported Tuesday (Dec. 10).

For example, there’s AvalonBay Communities, one of the largest multifamily real estate investment trusts, according to the report. It’s a new entry in the build-to-rent business, spending $49 million to snatch up a set of 126 build-to-rent townhomes in Texas.

“We think we’re really in the early stages of what could be a pretty significant, almost new asset class,” said Matt Birenbaum, chief investment officer at AvalonBay, which is planning to invest $1 billion in the sector, per the report.

AvalonBay is one of several institutional investors and private equity firms hoping to capitalize on the build-to-rent market, in which developers construct neighborhoods of single-family homes designed to be leased and not owned, the report said.

Their targets? A growing number of Americans who thought they might someday be homeowners as they got older, but now see renting as a more affordable path, per the report.

Between 2021 and 2023, the number of build-to-rent housing starts doubled to 10% of overall single-family housing, the report said, citing a National Association of Realtors analysis of data from the U.S. Census Bureau.

For the first time in more than two years, the American renting population has exceeded that of homeowners for the last four quarters. During the third quarter, renter households rose 2.7%, three times the pace of homeowner households and the fastest pace for renters in nine years, the report said, citing a Redfin analysis of census data.

This growth is in response to the increasing gap between the cost of renting versus owning a home, as mortgage rates remain at close to 7%, according to the report.

Meanwhile, the PYMNTS Intelligence report “Money Mobility Tracker®: From Rent to Refunds: The Push for Faster Payments in Property Management” showed the pressures facing homeowners and renters amid issues such as high inflation and living expenses. As a result, nearly half struggle to keep up with their monthly housing payments.

“Twenty-two percent of respondents report skipping meals, while nearly 21% work extra hours or sell belongings,” PYMNTS wrote in April.