New homes built to rent are reaching a peak in popularity, driven by two factors: an increase in remote work and millennials reaching the prime home-buying age, despite facing real estate purchase challenges.
But which sectors have contributed most to this growth? To answer this question and chart the future of this niche market, RentCafe.com analyzed Yardi Matrix data on rental single-family homes in professionally managed communities.
A record 27,500 rental homes are set to open in 2023, up 75% from the previous year, with new peaks every year culminating last year due to changing lifestyles following the COVID-19 pandemic.
This relatively new real estate sector has attracted strong interest from both institutional investors and established builders and has seen unprecedented growth, particularly over the past five years. In fact, 41% of all rental housing in the country (approximately 68,000 rental homes) was built between 2019 and 2023.
Rental housing construction to reach highest level in 10 years in 14 major U.S. metropolitan areas in 2023
Overall, 2023 was a fantastic year for single-family rental home supply, exceeding all expectations. In fact, 14 of the top 20 cities for rental home completions hit their highest records in the past decade, with Phoenix emerging as the national hotspot for new rental homes. This city alone added more than 4,000 homes in 2023, its best performance in the past decade and far surpassing the 2,700 rental homes that Dallas added in the same year.
Next was Atlanta, which added just under 2,000 single-family homes for rent last year, also a 10-year high. Austin, Texas, and Charlotte, North Carolina, also rounded out the top five with 840 and 714 new rental homes, respectively.
Las Vegas, Houston and Salt Lake City also ranked among the top 20 metro areas for rental home completions in 2023, having added hundreds of single-family homes to their rental inventory.
Phoenix leads metro area in number of completed rental housing projects between 2019 and 2023
Sunbelt metropolitan areas dominate the rental housing construction market. Specifically, Phoenix, Dallas, and Atlanta are the top three largest cities for new single-family homes built for rent over the past five years. Phoenix stands out from the rest with over 9,300 homes completed between 2019 and 2023. The metro area has the largest rental housing portfolio in the nation, with nearly 12,400 homes. Dallas comes in second with just over 6,500 rental homes built in the past five years, nearly double the number of Atlanta, which is third on the list, with roughly 3,500 rental homes built.
Other Texas metros in the top 20 for new single-family home supply for rent are Houston (2,402 units), Austin (1,720 units) and San Antonio (1,299 units). This sun-soaked cluster of thriving rental housing markets also includes Riverside, California, which is seeing 1,011 rental home openings between 2019 and 2023.
The Midwest also features well on the rankings. Zooming out, Detroit is the leader in the region, ranking fifth nationally with more than 2,110 new rental homes built. Columbus, Ohio, is just three places behind the Motor City, but has completed 1,470 rental homes in the past five years. Kansas City, Missouri, and Indianapolis have also made great strides in the rental housing space, building approximately 1,080 and 780 homes, respectively.
Texas has the most single-family rental homes under construction
Increasing demand for rentals due to the allure of a private backyard and fewer burdens compared to owning a home, along with interest from established investors, are driving rental home construction, with more than 45,000 rental homes under construction, setting a new record for the industry.
Surprisingly, more than half of these upcoming rental homes are concentrated in just five metropolitan areas: Phoenix (over 7,200 units), Dallas (nearly 6,500 units), Houston (over 4,800 units), Huntsville, Alabama (nearly 2,500 units), and Charlotte, North Carolina (2,426 units).
Construction of single-family rental homes is also notably strong in Florida, where four of the state's largest metropolitan areas rank among the top 20 regions in the nation for rental home construction underway. The state's most populous city, Jacksonville (9th in the nation), leads the way with 1,836 rental homes currently under construction, followed by Tampa (1,350 units), Orlando (nearly 1,150 units) and North Port (more than 990 units).
On the West Coast, Riverside, California, is solidifying its position as the nation's most active rental home construction market, with about 950 single-family rental homes under construction, while Sacramento ranks 19th nationally behind Riverside and plans to add 880 rental homes over the next two years.
Clearly, the rental housing niche has boomed post-pandemic. The growing demand for more space and privacy, combined with lifestyle changes, has increased the average annual number of rental housing completions. From 6,600 units in the years prior to the pandemic, it has risen to tens of thousands post-pandemic. This year is expected to be another strong year for this niche.
For more information and a detailed methodology, read the full report from RentCafe.com.