Build-To-Rent Spreads Across U.S.

For some residents, the gated community in the Arizona desert is their first go at suburban living. The 222 houses have tile roofs, garages and white-fenced backyards where residents host barbecues and their dogs play. But these aren’t forever homes, or even starters: They are one- and two-bedroom rentals, with rents starting at US$1,420 a month.

Subdivisions such as Christopher Todd Communities on Happy Valley, located about 30 miles outside of downtown Phoenix, were built for renters from the start. Owner and developer Todd Wood, a former organic food mogul, started his real-estate company almost five years ago to seize on what he saw as an increasing demand for rental housing. Mr. Wood has now developed more than 2,000 rental houses around greater Phoenix.

The Phoenix-area subdivision Christopher Todd Communities on Happy Valley spans 222 one- and two-bedroom houses that were built to be rented. PHOTO: MARK PETERMAN FOR THE WALL STREET JOURNAL

Investors have been buying up single-family houses to rent out for some time, typically in disparate bunches in communities where most people own their homes. Tenants may have absentee landlords. Built-to-rent developments, however, are entirely new subdivisions designed for renters. They are managed more like new apartment buildings, with designated staff for repairs and maintenance. In the past few years, the model has taken off around Phoenix and elsewhere—and is likely to become a dominant force in the rental housing market in the coming years, with implications for the communities that surround them, and the nature of home ownership

Betting billions on rentals

Today, built-to-rent homes make up just over 6% of new homes built in the U.S. every year, according to Hunter Housing Economics, a real estate consulting firm, which projects the number of these homes built annually will double by 2024. The country’s largest home builders are planning for that future. Backed by banks and private investment firms, they have already bet billions on the sector, and will put down some $40 billion more during the next 18 months, Brad Hunter, founder of Hunter Housing Economics, projects. Built-to-rent subdivisions have been constructed or are under development in nearly 30 states. Taylor Morrison Home Corp. , Mr. Wood’s development partner and the nation’s fifth-largest builder, has said built-to-rent could soon become 50% of its total business. The company didn’t disclose the current share.

Homeownership is expected to decline over the next two decades—a trend that started with the generation after the baby boomers, according to the Urban Institute, a Washington, D.C., think tank that advocates for homeownership. Prices are rising faster than ever, leaving more people, including those with higher incomes, more likely to rent.

PHOTO: MARK PETERMAN FOR THE WALL STREET JOURNAL

Built-to-rent subdivisions are attractive to some urban apartment renters who want to move to the suburbs but are unable or uninterested in buying a home. Many young professionals and families are less keen than their parents in being tied down by a 30-year mortgage, according to real-estate analysts, builders and tenants. They want the flexibility of renting and the freedom that comes with being able to pick up and leave after a lease. As they age, they may want the yard, garage, good schools and roomy basement, without the headaches of mowing that yard or buying a new motor when the garage door breaks.

What becomes of the suburbs if, one day, homeowners are outnumbered by renters? For one, the suburbs may become more transient places where residents move in and out more often, industry experts say. Tenants of single-family homes typically stay around longer than apartment renters, but tend to move sooner than homeowners, who stay for an average of seven years. “They’re not going to plant an oak tree,” says real estate consultant John Burns, referring to built-to-rent tenants.

Some think a transition to rent won’t mean an end to building wealth through suburban property ownership. Christopher Ptomey, executive director of the Terwilliger Center for Housing at the Urban Land Institute, sees potential in fractional ownership models, such as neighbourhood real-estate investment trusts. In these structures, people would own stock in companies that hold commercial and residential properties in their area. “We need to be thinking more about different ways that people can still own the communities that they live in, outside of the primary residence model,” Mr. Ptomey says.

New forms of ownership and investment could also give more renters a greater stake in local government and politics, something they often lack now. That could affect everything from land use to school boards.

“In some cases, you’ll talk to local officials and they’ll say ‘I don’t really listen to the renters. They’re not here that long. They’re not invested in the community,’” says Katherine Levine Einstein, a Boston University professor of political science who has studied renter political representation.

“We didn’t want to get into homeownership,” says Joe Paul, a 29-year-old nutrition and lifestyle coach. He and his wife, Allie, who works in fitness retail, relocated to a Christopher Todd community in Goodyear, Ariz., this past year. Mr. Paul says it was wanderlust and a love of the mountains that drew the couple and their dog from the Milwaukee suburbs. For now, the couple’s financial goals are focused on paying down existing debt. “We still want to travel and don’t want to have to maintain a house,” Mr. Paul says.

Welcome to (rental) suburbia

The look-and-feel of rent-only subdivisions vary from their HOA-governed neighbours. There are no for-sale signs. And there are no for-rent signs, either, because would-be renters go through an in-person or online leasing office. Some, like Mr. Paul’s neighbourhood, are built to look more like garden apartment complexes, resulting in compact and uniform layouts. Others mix up facades and colour palettes to give neighbourhoods a less cookie-cutter feel. On the interiors, builders opt for more durable materials, meant to last for the duration of their long-term investment. That can sometimes mean higher-end finishes, such as granite countertops. It can also mean less traditional options, like vinyl floors.

Residents in some of these subdivisions are more likely to have dogs than children, which means doggy doors and poop-friendly artificial turf are common, says Mr. Hunter, the economist. Christopher Todd, for example, runs a one-minute advertisement on YouTube that is narrated by a dog named Calli. “Storage for my toys!” she exclaims. By contrast, the addition of child-friendly amenities like aboveground pools or playground equipment may be restricted by rental leases at many developments.

Despite the rapid growth of built-to-rent houses so far, there are headwinds. One is a shortage of suitable land, which is affecting housing development across the board.Another barrier is opposition from local governments and from homeowners, who have a tendency to view rental properties, even if indistinguishable from their own homes, as bad for residential property values, builders say. The town of Stockbridge, Ga., an Atlanta suburb, temporarily banned the construction of new rental properties while it seeks to change zoning laws that would permanently stifle built-to-rent projects. But these impasses have done little to slow down the sector’s overall growth.

“There’s a portion of America that wants to rent a new house. Let it happen,” Mr. Burns says.

For many tenants in built-to-rent neighbourhoods, a home that they own is still their vision for the future. Software architect Matt Marooney, 42, rents a five-bedroom house from Mr. McNeilage’s company in Jefferson, Ga., for $2,400 a month. He lives there with his wife, Ellie, 36, and their five sons, ages 1 to 17. He owned a home during a previous marriage and says renting has helped him get back on better financial footing.

Owning a home again is still Mr. Marooney’s dream. Somewhere with a bigger yard, maybe some land with room for his sons to ride four-wheelers and shoot guns. “We have these conversations almost weekly,” he says. “You know, ‘What kind of house would you want to be in?’ We’ve talked about this house here. If this house had a basement and had an extra room, we probably would think about buying this place.”

From the Spring 2024 issue of Kanebridge Quarterly. Order your copy here.

W hile water views are usually considered most desirable for property buyers, golf course vistas are snapping at their proverbial heels. This past quarter century has witnessed a golden age in Australian golf course living, with dozens — if not hundreds— of residential courses built around our major cities and tourist towns. These days, there’s a buoyant market for established large golf homes alongside off-the-plan apartments being retro built to take advantage of existing golf course views. So what’s the appeal?

Green dreams

Barbara Wolveridge is a director at Sotheby’s International Realty. She has worked with many of Australia’s most prestigious golf course developments including The National in Cape Schanck Vic, Moonah Links on the Mornington Peninsula, Macquarie Links International Golf Club in Sydney’s West and the Mirage Country Club in Port Douglas where she currently lives. (She was also married to the late renowned golf course designer and former US Tour player Michael Wolveridge.)

“People like to live on golf courses,” she says. “You can walk out of your house onto a beautiful course. But what you’re really buying is the extended view. You have acres and acres in front of you, but you’re paying for a small block of land.”

And while you can’t run across the greens in your bare feet, as soon as the golf is finished for the day, there are tracks and cart paths where you can walk and bike, enjoying the natural surrounds of lush greenery and wildlife.

“Some courses are a haven for wallabies and kangaroos,” says Wolveridge. “Here in Port Douglas the pristine ponds attract the magpie geese. There are the most beautiful birds everywhere — and the odd croc as well.”

Who’s buying?

While you might expect golfing real estate to be the exclusive domain of well-heeled golf-mad retirees, that’s only a part of the story. Golfing homes appeal to a broad section of the community, especially in the post-COVID era, when home often also serves as an office.

“Probably 50 to 60 percent of my buyers are golfers,” says Wolveridge. “But in some areas people skew younger, in their 40s — not necessarily golfers, but those who want that lovely view. A lot of people like to come up here for the winter and when they’re not here, they rent out their properties.

“My very wealthy clients don’t do that, but the middle bracket come and use it when they like, and then it goes into the letting pool for the rest of the year.”

A cautionary tale

For most golf course adjacent dwellers, the only potential negative is the odd Titleist Pro V1 ball shattering the serenity as it sails through the bedroom window. But that’s not the worst thing that can happen.

Built in 1990 on the edge of the Great Dividing Range, Paradise Palms in Cairns lived up to its name with pristine rainforest providing a backdrop to rolling fairways and man-made lakes. Home to professional events including the Skins Game and Ladies’ Masters, it climbed to number nine ranking in Golf Magazine’s list of the nation’s Best Public Access Courses.

In 2016, the signature 7th hole was sacrificed to make way for an access road into a residential development of 585 luxury units. Then, horror. The course declined under new owners, was sold again, and a multimillion-dollar redevelopment plan was revealed that would close the 18-hole course and transform it into a new housing estate.

Those who dreamed of seeing out their days overlooking manicured greens are now facing the prospect of a sea of roofs.

“Once a development is established, it has to make money,” says Wolveridge. “The developer has to put in somebody who knows how to run a golf course — and that is the hard part.

“If the developer isn’t making any money, it won’t necessarily devalue the properties, but if the course does so badly it goes broke, that is the danger.”

Happily, cases like Paradise Palms are few and far between.

“I can think of so many golf course developments in Australia that are very successful, and probably only three or four that aren’t,” says Wolveridge.

As always with property, to avoid a triple bogey, it’s a case of buyer beware.

How green is your view?

A commonly held belief is that golf courses use vast amounts of water, chemical pesticides and fertilisers to keep those greens pristine. In reality, golf course management in Australia claims to be at the forefront of environmental sustainability, pioneering the use of grey water and efficient irrigation techniques as well as new drought- and disease-resistant grasses.

Following the release of the landmark GC2030 report by The Royal and Ancient Golf Club (R&A) in Scotland in 2018, Australia has joined a dozen or so other countries globally answering the call to action on topics such as climate change, resources, water conservation, pesticides, labour and land.

While golf courses have historically relied on a cocktail of pesticides and herbicides, many are today transitioning to organic maintenance practices, using natural means to control pests and promote healthy turf.

KDV Sport golf course (12 holes) on the Gold Coast and Kabi Organic Golf Club (27 holes) at Boreen Point in the Sunshine Coast hinterland are Australia’s only two organic golf courses to date. But there is no accommodation — yet — at either.