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Every contractor involved in residential construction has been feeling some measure of pain from the slowdown in housing starts—and eager to pivot to workable alternatives. One option: the single-family build-to-rent (BTR) niche. The growth opportunities are substantial. But the pitfalls can be deep.
Here’s what’s important to know.
Environment’s Ripe for Build-to-Rent, But…
It’s been a tough environment in the U.S. for single-family housing. The COVID-19 pandemic accelerated trends like delayed homeownership and a preference to rent among younger consumers. Inflation and higher interest rates have added pressure.
Housing starts have remained sluggish, with 1,364,100 units in 2024—3.9% below 2023’s 1,420,000. Estimates place the single-family housing shortage between 1 million and 7 million homes, while affordability has declined 38% since 2020.
As a result, incentives have become common, lot sizes have shrunk, and the build-to-rent model has emerged as a way to meet demand and keep builders active. Over the 12 months ending November 31, 2024, BTR housing starts reached an all-time high of 92,000 units—accounting for 9% of all housing starts.
While BTR offers diversification and balance, it carries risks that can be costly without proper preparation.
Understanding the Risks of Single-Family Build-to-Rent
High land prices, property management challenges, higher unit costs, and unpredictable tenancy all pose challenges. But one of the most significant long-term risks is exposure to construction defect claims—especially if properties are later converted to individual ownership.
- Insurance voids upon conversion: Lack of planning around Statutes of Repose can lead to coverage gaps.
- Construction defect exposure: Quality issues and rising insurance costs increase liability.
- Class action risk: Conversion to individual ownership raises litigation exposure.
- Property management failures: Poor maintenance can drive future claims and reduce asset value.
How Builders and Investors Can Avoid BTR Conversion Risks
- Plan early for future conversion and secure insurance coverage that removes conversion limitations—though at a higher premium.
- Use structural warranties combined with general liability coverage to maintain limited protection post-conversion.
- Consider Inherent Defects Insurance (IDI), which HUB International has adapted to address BTR conversion risks. IDI provides post-completion protection against structural defects and resulting damage.
Closing the Risk Gap
Quality assurance lies at the root of many BTR risks. HUB has partnered with Real Time Risk Solutions to adapt its construction safety and quality management platform for the BTR market.
The platform creates a comprehensive digital record of construction milestones, supporting better risk management, underwriting accuracy, and future resale or conversion due diligence.
With the right strategy, builders and investors can capitalize on BTR opportunities without exposing themselves to undue risk.
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