Big Opportunities in Small Places
Homeownership is the American Dream: four walls to call your own. But, for nearly a century, the single-family home has remained unchanged. Despite single-family homes representing upwards of 65% of total housing, the last significant design upgrade was to incorporate the invention of the attached garage, which became a staple due to Ford’s affordable car revolution.
House designs and the lifestyle they nurture are contextual. They mirror specific technological, legal, financial, and cultural values that are extremely hard to change without rebooting the entire space.
Home design has adapted in minor ways to mirror current trends and usage needs. For example, flat screen TVs have freed up square footage and the kitchen-dining-living area triangle opened space for larger families and entertainment. However, truly foundational, life-changing shifts in the production house paradigm remain extremely rare, but we’re experiencing one now – the growth of single-family “Build-to-Rent” (BTR) communities.
What is BTR?
BTR reimagines single-family residential living from the traditional individually owned or rented unit into one professionally managed and highly amenitized community.
In the early 2010s, BTR started in earnest locally in Arizona and is catching on across the country. Take Phoenix for example; generally located in the suburbs, residential BTR communities experience lease rates up to 5x faster than Class A multi-family apartment projects in the urban core of the city. Today, there are more than 30 completed BTR communities with nearly 100 in the planning stages in the Southwest alone. The largest builder of these projects, NexMetro, has delivered over 5,000 rental units across the country through Q3 2020, with many more in the pipeline.
The consumer demand for BTR communities indicates a major generational shift in how we perceive the American Dream. Access has replaced ownership. How we idealize housing in America at scale is changing — you can have the four walls, but they no longer need to be permanent and you no longer have to own them. Cultural and financial norms have shifted, and an uncertain economic climate has led to a fear of commitment to a mortgage, as well as a broader acceptance of co-living and decrease in the historical stigma of renting.
What’s Driving BTR’s Growth?
Smaller spaces are increasingly appealing. According to the NAHB, the Median Single-Family Lot Size has hit a record low. This makes sense in light of changing demographics. Millennials are finally growing up. They’re moving in together, getting married, and having children. But they’re also buying less material goods and becoming more environmentally conscious. The less you own, the smaller the space you need.
Owning things is less important. Millennials would rather own a dog than a car. The American Veterinary Medical Association claims that dog ownership is on the rise while car ownership is going the opposite direction. Ridesharing solutions and the growing trend of remote everything — in particular, you can learn and work from anywhere — have broken the bond between owning a car as a requirement to home ownership, or having a garage as a critical feature in your home.
Renting now often makes more financial sense than owning. The booming retirement-age population desires lock-and-leave, low-maintenance solutions, but enjoys the privacy offered by fewer shared walls. Further, if a retiring homeowner can take the equity out of their home, but find a rental in their neighborhood with similar features, they can utilize the cash to invest in more liquid assets.
Above all else, it’s profitable for developers. The single-family rental space has been a highly invested market segment. Previously, owner-occupied units were bought up in pockets all over the place, which understandably strained property managers and other general operations. With an entire community of single-family rentals, management becomes more efficient, operating expenses can be synergized, and management can become more streamlined and less expensive.
Mosaic’s BTR Fit
BTR is ripe for innovation. Mosaic is currently developing several BTR communities across the region, with 450 units planned and over 1000 units in our pipeline. For us, these communities not only represent a new housing type, but constitute a platform through which we can rethink how houses are put together, financed, managed and eventually lived in.
Mosaic has unlocked efficiencies in the single-family development space. With control over starting cadences for the homes, we can push these efficiencies to new levels. Because the BTR space is relatively uncharted, or burgeoning, we have the opportunity to improve and better define an industry from its foundation, in the place where it all started, Arizona. With all eyes on the movement, there is room to influence the way BTR will roll out and be adopted nationally.
We believe this new housing solution will have an enormous impact on how we live together, commute, shop, work, learn, and save. And, BTR is a great complement to Mosaic’s technological approach. The communities align with many of the benefits around site development and the leveraging of local resources, while still delivering thoughtful designs and positive common spaces.
BTR communities will address affordability and represent a tailored fit for city planners and developers to fill in the “missing middle density” that is lacking in so many American metros. We will update you here on our BTR journey as we design and build (smaller) places people love, and continue to make them widely available.