Trends in the Multifamily Industry and Build to Rent Communities in 2022

Trends in the Multifamily Industry and Build to Rent Communities in 2022

Building products manufacturers need to structure their product lines to match the preferences of the investor - meaning on trend, low maintenance, resident health focused, and still affordable raw materials and finishings. 

The multifamily and build-to-rent (BTR) sectors are thriving within the construction industry, a trend that accelerated in 2021 and continues gaining momentum in 2022. Last year, the nationwide multifamily occupancy rate was approximately 97 percent, and the National Association of Home Builders projects that multifamily starts will rise 6.1 percent from last year to about 496,000 units in 2022, with cities such as New York, Seattle, Dallas, Austin, Los Angeles and Denver leading the way. This growth may flatten in 2023, but the multifamily sector has seen increased acceleration compared to the single-family sector. Indicators point toward a strong market this and next year.

Why the Change?

Because of this growth, the multifamily sector and build to rent sector is attracting investor capital from a variety of sources, including private investors, syndicators and local market participants, in addition to the more traditional institutional investors and real estate investment trusts (REITs). Thanks to tight vacancies, significant rent growth, and increasing absorption, this sector enjoyed a surge in investment capital in 2021. Despite concerns over potentially higher interest rates, rising construction costs, and inflation, investments into the multifamily sector are expected to stay strong in 2022. 

One major factor that’s impacting the construction industry as a whole—including multifamily housing and build-to-rent communities—is the shortage of lumber and other traditional building materials, including appliances, doors, windows, siding, insulation, steel beams and roofing materials. Contractors continue to experience unprecedented price hikes and delivery delays, making it difficult to complete projects on time and prove their value to property owners. In general, the cost of building products is up 21 percent year over year, according to the NAHB.

While this comes with challenges, it also presents new opportunities for builders and manufacturers to explore and implement alternatives for construction. In light of a shifting workforce and materials shortages, as well as higher pricing, they are turning to different systems, products and suppliers to fill in the gaps and help them get the job done. For example, insulated concrete forms (ICFs), insulated concrete panels (ICPs) and structural insulated panels (SIPs) are some of the energy efficient structural systems currently on the rise because of the pandemic. By using these systems and products, builders can work around delivery delays, save time and control costs while creating housing that is more energy efficient and disaster resilient.  

However, not every traditional building product is easily substituted with an alternative, and contractors and developers are passing down the higher cost of construction to consumers according to data we’re gathering in our monthly tracker on PRO sentiments

Build to Rent Communities Are Emerging as the Step Between Multifamily Living and Home Ownership

With new construction cost and labor constraints hindering the creation of new single family housing supply, millions are priced out of single-family homeownership for the time being and the nationwide housing deficit persists. As a result, multifamily housing and build-to-rent communities have become a necessary alternative that is liable to persist for years to come. While millions are being forced to continue to rent, the desire NOT to be in traditional multi-family housing options, like apartments, is strong as consumers look to fulfill their lifestyle goals outside of city centers.

In fact, data indicates that single-family build-to-rent homes will hit an all-time high this year. We’re seeing this trend play out in a couple metropolitan areas, such as Dallas, Texas, and Phoenix, Arizona, and even more so in low-density suburbs outside large cities that have land available for urban expansion. 

Taylor Morrison, a top 100 homebuilder who is in the build to rent business, has said that BTRs could eventually represent half of their output if the trend continues.

BTR communities encompass single-family homes—which are increasingly more popular than apartments—with professional property management oversight. Prospective homeowners receive the temporary benefits of not living in an apartment and flexibility of renting while biding their time until ownership is feasible. The response to Covid also has contributed to this trend by spotlighting the appeal of a single-family lifestyle, as opposed to apartment living, and driving numerous renters of various demographics out of big cities. 

Responding Now and Looking Ahead

Building products manufacturers need to structure their product lines to match the preferences of the investor - meaning on trend, low maintenance, resident health focused, and still affordable raw materials and finishings. 

Similarly, building up a network of reputable and highly communicative contractors who can properly install, maintain, and repair any components will be critical for manufacturers to maintain a quality brand reputation among investors and property management companies to ensure enduring sales for years to come.

When evaluating if the total addressable market is large enough to justify expansion into alternative regions, custom market sizing research is a great first step. 

Getting answers to each of the scenarios above is where our market research experts at The Farnsworth Group can help. Then, equipped with data unique to your company’s opportunities and risks, you can ensure that your company grows alongside these trends for multi-family housing and build to rent communities.