The Rise of Build-to-Rent: Challenging the BTR Price Premium Assumption
Executive Summary
Parcl Labs analyzed Build-to-Rent (BTR) vs. scattered site rental pricing across the US and 7 key markets from January 2020 to July 2024. Our API-driven research reveals:
- BTR properties generally underperform scattered site rentals on a price per square foot basis. This finding challenges expectations of BTR commanding price premiums.
- As of July 2024, scattered site rentals command a premium in 7 out of 8 analyzed markets.
- Most markets show a widening gap since 2020.
We focused our analysis on the US overall and 7 core institutional markets: Atlanta, Austin, Charlotte, Dallas, Houston, Phoenix, and Tampa. Here's what we found:
- BTR Outperforms:
- Houston: 4.3% BTR premium (as of July 2024), narrowed from 18.5% in 2020.
- Relatively Even:
- Dallas: 5.7% scattered site premium, fluctuating gap with periods of BTR leadership.
- Charlotte: 5.3% scattered site premium, volatile with occasional BTR wins.
- Atlanta: 3.6% scattered site premium, gap narrowed since 2021-2022.
- Scattered Site Outperforms:
- Tampa: 16.3% premium, consistently outperforming since 2020.
- Austin: 13.2% premium, steady gap maintained throughout.
- Phoenix: 11.6% premium, volatile with brief BTR advantages.
- US Overall: 7.3% premium, widened from near-parity in 2020.
Why does this matter?
- Increasing BTR supply in these markets may exert further downward pressure on BTR prices.
- Given the lack of large-scale studies on these dynamics, new BTR developments may have been underwritten with an assumption of a price premium.
We will continue monitoring these trends closely. And you can too. Conduct your own analysis by accessing Parcl Labs' BTR data directly through our free API.
This analysis is part of our ongoing BTR series. You can find our BTR supply analysis here. For access to the full report, which includes additional metrics and insights, please email team@parcllabs.com.
Background
The BTR sector has gained momentum based on key assumptions: BTR properties cost less to maintain while commanding a rent premium over scattered site single-family rentals. This premium is attributed to newer construction, better amenities, and centralized services.
As the BTR sector matures, it's important to reexamine these assumptions. Our research focuses on a critical question: Are BTR properties achieving the expected rent premium?
Recent market shifts add weight to this question. Our previous BTR supply analysis shows many top markets with high institutional ownership experiencing increased conversion of new single-family homes into rentals. This surge in supply means increased competition. With many investors simultaneously adopting the BTR strategy, the early-mover advantage can quickly erode as similar products enter the market, potentially exerting downward pressure on prices.
Our Approach to BTR Rental Rate Analysis
We take a Big Data and data science approach, collecting and transforming millions of unit-level observations from thousands of sources to track when newly built homes become rentals. We define BTR as newly constructed single-family homes observable as rentals shortly after completion.
This approach allows us to:
- Index both BTR and scattered site homes at the property level
- Track asking monthly rental rates indexed to specific units
- Standardize comparisons using price per square foot
- Analyze aggregate BTR vs. scattered site PPSF trends over time
In the following sections, we'll present our findings for U.S. national trends and seven key institutional markets (Atlanta, Austin, Charlotte, Dallas, Houston, Phoenix, and Tampa). The results challenge some commonly held beliefs about the BTR market.
Let's dive in.
United States: BTR Underperforms Scattered Site Rentals
National data reveals that, contrary to expectations, scattered site rentals consistently outperform BTR properties on a PPSF basis from January 2020 to July 2024.
As shown in the chart, initially, BTR and scattered site rentals tracked closely, with BTR at $0.99 PPSF and scattered site at $0.98 PPSF in January 2020. A divergence began in mid-2020, widening over time. By July 2024, scattered site PPSF reached $1.33, while BTR PPSF was $1.24. As of July 2024, scattered site rentals command a 7% premium over BTR properties.
Atlanta: BTR Trails Scattered Site, Gap Narrows Over Time
Atlanta, an early hub for institutional SFR, shows an intriguing BTR vs. scattered site trend. Scattered site rentals outperform BTR on PPSF. In January 2020, scattered site commanded $0.83 PPSF vs. BTR's $0.77 PPSF.
The gap peaked in 2021-2022, but has since narrowed. By July 2024, scattered site reached $1.15 PPSF, while BTR rose to $1.11 PPSF, shrinking the premium to 3.6%.
This convergence suggests BTR's growing competitiveness in Atlanta's established SFR market.
Austin: BTR Consistently Underperforms Scattered Site
Austin's BTR market shows a consistent discount compared to scattered site rentals.
In January 2020, BTR commanded $0.98 PPSF while scattered site was at $1.03 PPSF, a 5.10% premium. This gap has been steady through the observed period. By July 2024, scattered site PPSF reached $1.29, while BTR PPSF stood at $1.14, representing a 13.2% premium for scattered site rentals.
The trend is particularly noteworthy given Austin's new build market dynamics - including increased reliance on the BTR strategy by Austin builders.
Charlotte: BTR Tracks Scattered Site with Volatility
Charlotte's BTR market generally tracks scattered site rentals on a PPSF basis.
In January 2020, BTR and scattered site rentals were closely aligned, with BTR at $0.80 PPSF and scattered site at $0.86 PPSF. Throughout the observed period, both types of rentals show an upward trend, but BTR exhibits more pronounced fluctuations.
By July 2024, scattered site PPSF reached $1.19, while BTR PPSF stood at $1.13, a 5.3% difference. However, this gap has varied over time, with BTR occasionally outperforming scattered site rentals.
Dallas: BTR Closely Matches Scattered Site with Minimal Gap
Dallas's BTR market generally follows scattered site rentals on a PPSF basis, but with more pronounced variations.
Starting at $0.99 PPSF for both in January 2020, the two segments have shown overall upward trends. BTR occasionally outperformed scattered site, notably in early 2021 and mid-2023, but also fell behind at times.
By July 2024, scattered site PPSF reached $1.30, while BTR PPSF stood at $1.23, a 5.7% premium for scattered site. However, this gap has varied throughout the period, with BTR sometimes commanding higher prices.
Despite fluctuations, BTR in Dallas generally maintains competitiveness with scattered site rentals, suggesting balanced market acceptance of both rental types.
Houston: BTR Consistently Commands Premium Over Scattered Site
Houston stands out as the only market in this study where BTR properties have consistently commanded a premium over scattered site rentals on a PPSF basis.
In January 2020, BTR started at $1.09 PPSF while scattered site was at $0.92 PPSF, an 18.5% premium for BTR. This comfortable premium has persisted throughout the observed period.
By July 2024, BTR PPSF reached $1.21, while scattered site PPSF stood at $1.16, representing a 4.3% premium for BTR properties. Although the gap has narrowed, BTR has maintained its pricing advantage throughout the entire timeframe.
Phoenix: BTR and Scattered Site Converge
Phoenix's BTR market exhibits a dynamic relationship with scattered site rentals, marked by periods of convergence.
Starting in January 2020 with BTR at $0.97 PPSF and scattered site at $0.98 PPSF, both types show an overall upward trend with fluctuations. BTR PPSF displays higher volatility, occasionally outperforming scattered site rentals, notably around July 2021 and January 2022.
By July 2024, scattered site PPSF reached $1.35, with BTR at $1.21, an 11.6% difference. However, this gap has varied widely, with BTR showing competitive periods throughout.
Tampa: BTR Consistently Lags Scattered Site
Tampa's BTR market consistently underperforms scattered site rentals on a PPSF basis.
In January 2020, BTR started at $0.88 PPSF while scattered site was at $1.03 PPSF, a 17% premium for scattered site. Throughout the observed period, BTR shows spikes and dips, while scattered site demonstrates a steadier upward trend.
Despite occasional convergences, particularly in early 2022, BTR generally maintains a lower PPSF. By July 2024, scattered site PPSF reached $1.50, while BTR PPSF stood at $1.29, representing a 16.3% premium for scattered site rentals.
Conclusion
BTR is a relatively immature asset class, and good data to inform decisions can be hard to find. Our perspective is that more data and more observations win. Through this approach, you are able to:
- Observe what homes are scattered SFR vs. BTR
- Get granular event data on rental asking prices
- Standardize this by PPSF to enable comparisons
- Aggregate at any level - unit, community, market, national - and analyze trends
- Use that data to make informed decisions
Our approach is one way to look at the data - there are many others. For example, you can track performance by product type, look at topline rent rates (vs PPSF), etc. These variations are possible via our API, and we encourage you to build from and improve upon our work.
We let the data speak, and based on this analysis, the common perception that BTR units will command better rates requires a deeper look.
Appendix - Detailed Methodology
BUILD TO RENT INDEXING METHODOLOGY
Our build-to-rent methodology relies on observable events occurring within the housing market. We look for new construction units that are rented within 6 months of being built, starting in the year 2020. A unit can fall out of measurement if it's sold to a new owner and doesn't reappear on the rental market within 6 months of the subsequent sale.There is much confusion around the definition of build to rent. Many methods rely on surveys, which covers a small subset of the overall housing market, are prone to biases, and don't have a clean reconciliation method. The issue with build to rent is that they are not static. Unlike commercial multifamily which can only serve one purpose, these are residential units that can be rented or sold. This requires better, more complete data to ensure an accurate pulse on what's occurring within the housing market.
RENTAL INDEXING METHODOLOGY
Our methodology for all rental units combines both on market and observed portfolio behaviors. When a unit is purchased by a portfolio consisting of rentals, we annotate this unit as being used as a rental unit. For example, say we have a mom and pop operator in Austin, Texas who owns 8 units. We have observed these units participate in the rental market. This operator buys a 9th unit. We will immediately annotate this 9th unit as a rental given the characteristics of the overall portfolio. This allows us to accommodate for situations where mom and pops fill units via personal relationships, never observing the rental on market.
RENTAL PRICE PER SQUARE FOOT
Rental price per square foot is calculated by taking the interior square footage of a unit divided by the asking rental price by rental type.
MARKET DEFINITION METHODOLOGY
Except for the United States, which covers all 50 states, markets are referring to the metropolitan statistical areas (MSA). We use Census defined MSA geometry boundary files. If a unit's geocoding information falls within this boundary, we include it in that market. Our unit data includes latitude and longitude geocoding information to give flexibility in defining different market criteria for various metrics.
FINAL REMARKS
The included metrics in this report are a snapshot of what's possible quickly with our unit level data, however they are one perspective. You may have many other perspectives on how to articulate insights regarding the housing market.We spent years developing a multi-source, geospatial indexing technology to create a unified view of every residential unit in the country, tying together disparate rental, listing and sales data into one clean, timestamped and chronologically ordered sequence of events occurring around that unit. Today, we accumulate data from over 5,000 sources and the rate of source data integration is accelerating. Given the recent volatility in housing market litigation, housing data will likely become more fragmented. It's imperative to have better information to make more intelligent decisions.
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