November 20th, 2019
BTR Might Not Mean Better for Door and Window Market
The fast-growing build-to-rent market could alter your sales
Just as a duck’s gentle crossing of a pond hides the intense paddling going on beneath, the placid glide in total new home starts conceals significant churn in how those numbers add up. In housing’s case, the unseen propellant is single family homes built with renting in mind.
There were roughly 42,000 starts of single family homes built for rent during the 12 months ending June 30, the National Association of Home Builders (NAHB) reports, using Census Bureau data. Those 42,000 comprise only 4.9% of all single-family starts, but that share is nearly double the 2.7% average for single family starts between 1992 and 2012. And CNBC says the 42,000 number doesn’t include build-to-rent (BTR) homes sold directly to investors, “so the numbers are likely larger and growing more quickly.”
Housing gurus like John Burns say this is just the start. “I think it’s going to explode,” said Burns, who owns a real estate consulting company, at a building industry conference in Boston on November 5.
Burns noted that BTR companies own roughly 165,000 properties today. You could say these firms owe their inspiration to the Great Recession when private equity firms bought tens of thousands of homes in foreclosure and became landlords. Lessons learned then about managing single family rentals were transferred to newly built homes as the economy improved, the foreclosure rate shrank and the demand for rentals persisted.
Today, roughly 29% of the nation’s renters are in single family dwellings, Burns estimated. That population includes several constituencies unlikely to disappear anytime soon: recent divorcees and empty nesters, younger people who want more space but aren’t yet ready to buy, people who want amenities and/or a location but lack the down payment, and folks who don’t want the hassle of home upkeep.
What do single family BTR homes look like? Burns says some are cottage-sized units around 1,000 square feet, roughly three-quarters are in townhouse buildings of two to seven units ranging up to 1,600 square feet, and a share are detached, upscale mini-manses that range from 1,600 to 2,800 square feet. The average for all BTR homes is 1,500 square feet. In contrast, the average new home in America today fills roughly 2,600 square feet.
An NAHB analysis found single family BTR homes were almost always wood-framed, were most likely to sport a vinyl siding exterior and had no more than a one-car garage. Fifty-two percent had one or two bedrooms, 20% had just one full bathroom, just 8% had a full or partial basement, and only one out of ten had a fireplace.
Builders focused on the BTR segment indicate that a critical element in excelling in the BTR space is the use of low-maintenance interior products that are highly durable, such as laminate flooring, natural stone countertops and stainless steel appliances.
None of the recent reports mention doors and windows, but the implications to door and window manufacturers are clear: with few exceptions, BTR isn’t upscale living. If this segment increases while new home starts continue to flatline—as most housing economists predict—the BTR will take up a bigger share of the new-home single family market. These homes will have fewer total doors and windows than the norm, and developers can be expected to demand durable, mass-produced modestly priced doors and windows rather than bespoke products.
The market is speaking. Door and window companies would be wise to listen.