Wall Street Pours Billions Into Build-To-Rent Communities, Betting Big Against Home Ownership Amid High Prices and Interest Rates

High home prices and stubbornly steep mortgage interest rates have put homeownership out of reach for many Americans. Wall Street has seized upon this, funding large swathes of luxury single-family suburban homes with everything an owner could want except a large down payment, mortgage and a deed in their name. 

For generations, the norm in American towns and cities was that the best suburban communities, with the best schools, where affluent homeowners dominated, did not have many – if any – rental properties. That is now changing as millennials with decent jobs have found themselves priced out of homeownership in the neighborhoods where they want to live. Real estate investment trusts such as AvalonBay Communities have taken up the slack, building large master-planned rental communities that replicate towny suburban neighborhoods. 

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According to the Wall Street Journal, AvalonBay purchased 126 build-to-rent townhomes in Bee Cave, Texas, for $49 million. The firm plans to invest over $1 billion in the build-to-rent sector.

A Renter Nation Beckons

"We think we're really in the early stages of what could be a pretty significant, almost new asset class," AvalonBay Chief Investment Officer Matt Birenbaum told the Wall Street Journal.

AvalonBay is part of a growing group of investors that includes Blackstone, Invitation Homes and Pretium Partners, who have realized that amid a housing crisis, renting is a far more affordable option for many would-be younger homeowners. The data backs them up: 

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The Renter Pool Outpaces Home Ownership

For the first time in over twenty years, the growth of the U.S. renter pool has outpaced that of homeowner households for the past four quarters, according to a Redfin analysis of U.S. census data. Additionally, the National Association of Realtors' analysis of U.S. Census Bureau data shows that from 2021 to 2023, the share of build-to-rent housing starts doubled to 10% of overall single-family housing. In the third quarter of 2024, new renter households increased at three times the rate of homeowner households.

According to a CBRE report from earlier in the year, the average monthly mortgage payment for a new home is 38% more expensive than apartment rent. Although homeowners have the added advantage of building equity while they live in a home, much of the initial mortgage payment period goes toward interest. With an unstable job market, many Americans feel insecure about getting hitched to a long-term financial commitment.

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All The Trappings Of An Upscale Suburban Community

Land availability in the Sunbelt states has made them a favorite for developers and investors. There is space to create suburban neighborhoods with backyards, balconies, patios, a communal pool and a gym. An on-site maintenance team makes for a resort-like living experience. Security and cameras make tenants feel secure about leaving for trips. However, mass rental communities do come with a downside. In August, the DOJ sued rental management software company RealPage for its algorithmic pricing, which the government alleged monopolized the market and decreased competition, forcing prices up. However, the case has now been dropped as President-elect Trump is expected to de-emphasize antitrust enforcement.

With interest rates showing no marked decrease, investors and developers behind the build-to-rent communities feel they have an open floor with little competition.

"We are not competing with individuals trying to buy individual homes in the private market," Matt Birenbaum said.

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