Texas' Big BTR Wave May Have Crested As Construction Starts Fall, Costs Mount

A national build-to-rent construction surge is bigger in Texas than anywhere else in the country.

But an upcoming stall in BTR development may be bigger too, creating significant unmet demand for a product that only some developers will stick to building.

The build-to-rent industry is still enjoying a large delivery surge. The number of BTR units under development jumped from 7,500 starts in 2020 to a record 48,087 starts in 2023, according to data from Point2Homes, a single-family rental platform and subsidiary of Yardi Matrix.

But national starts dropped by more than half to 22,610 in 2024.

And those in the Texas BTR game caution that growth hasn’t been — and won’t — remain linear, predicting that the construction pipeline will likely dry up further, at least temporarily. Capital remains difficult to secure, tariffs and other policies threaten the construction industry and some developers dipping a toe in the pond are finding that they prefer traditional multifamily over BTR. 

“A lot of the stuff you’re seeing under construction now was committed to three years ago, two-and-a-half years ago,” said Paul Davey, CEO of Houston-based Balcara Group, which has exclusively developed build-to-rent communities since its formation in 2018. “I would project a big drop-off a year from now, two years from now.”

Texas has the most U.S. rental houses under development by far, with nearly 22,000 on the way. Second-place Arizona and third-place Florida each have fewer than 14,000 units in the pipeline.

When complete, those units will expand Texas’ BTR inventory by 70%.

At the national level, more than 110,000 single-family rentals are under construction, which will expand existing inventory by 53.5% when completed.

Filling those units is not an issue. As home buying remains unaffordable and people want more space, strong demand is set to persist, Yardi Matrix Manager of Business Intelligence Doug Ressler said. 

“It’s a complement to multifamily as people are looking for more space and more familial type of things,” he said. “So it is promising. It is continuing to grow.” 

Yardi Matrix projects continued interest rate elevation, meaning people will continue to rent instead of buy to stay within their budgets, Ressler said. New single-family rental construction was up 41% year-over-year in 2024 even as traditional housing starts fell by 2%, according to John Burns Research and Consulting data.

Landmark Properties has two completed build-to-rent communities in Houston and Alabama, Development Manager Rex Warner said. Another project in Conroe, The Everstead at Windrose, is delivering in phases, with some units complete and the rest expected by the end of this year, he said.

Most of the tenants renting in Landmark’s BTR projects are young professionals or families along with some empty nesters who move to be closer to their children and grandchildren, aligning with Yardi Matrix findings. 

“They wanted to be able to have a ground-level unit. Nobody’s living over you … Pets are very important. Also, access to a garage. Those were the three biggest [factors],” Ressler said.

But despite its popularity, difficulty getting financing could hinder developers from initiating more BTR projects, meaning supply will drop even as demand stays high. The bar to landing an equity partner has been raised substantially, Davey said, and a lack of sales in the noninstitutional market means capital is not getting recycled.

“If someone hasn't been the lead on creating an investment and exiting successfully, it's very difficult to get capital today,” Davey said.

It’s also a bad time to be a first-time borrower or equity partner today, pushing some developers out of the BTR space altogether, he said. 

“I think there's some frustration on people's parts as the real estate capital markets have been very challenging for everybody for the last three years,” Davey said. “There's some fatigue.”

In addition, the cost of goods like steel and wood, along with the ability to find labor, will determine whether the building continues at the same rate, Ressler said.

“We don’t know the answer to that right now,” he said. 

There was already a significant shortage of construction workers in the U.S. before President Donald Trump issued 10 executive orders regarding immigration and initiated mass deportations last month. The orders follow data showing the share of immigrant workers in the construction industry hit a record high last year. 

BTR developers are also worried about construction costs, which rose more from December to January than in the prior year, largely due to anticipation of Trump’s tariffs on imports from Canada, Mexico and China.

Any long-term impact of tariffs remains to be seen, however.

Landmark monitors policies and interest rates as closely as possible, but they can be difficult to project. The company tries to not let super high-level macro data drive its strategy too much, Warner said. 

“We do track all that stuff and want to manage any downside risk, but primarily we focus on our internal execution and making sure that we remain disciplined on locations, underwriting and ensure that we are in a great position to execute on our business plan,” he said. 

Even without external pressures, though, intricacies of BTR leasing and development might also be discouraging to newer developers, Davey said. Balcara primarily rents to families, meaning they will have many more conversations about a potential rental and consider factors such as the quality of the local school districts. 

“It’s a process. You need to be patient and understand … families start looking far in advance for when they need to move versus someone who just moves to town like, ‘I gotta have an apartment,’” Davey said. “So people might say ‘Three months from now, I’m moving, I’m starting to look at everywhere in this area.’” 

Balcara Group has five developments in Houston and Tampa, two of which it has leased up and sold, according to company documents. Balcara at Meridiana, a master-planned community in Rosharon, south of Houston, stabilized in December. 

Balcara saw about 12 to 14 units leased a month in its Meridiana development, Davey said. By contrast, typical Class-A apartments lease about 22 to 24 units a month. 

Landmark has seen its BTR projects lease up at a similar rate to its apartments, which Warner credits to the company’s front-end research on what demographic is moving into the area. 

“[We] try to almost obsessively focus on the design to give these potential tenants what they are looking for and not necessarily too much else,” Warner said. 

But, there still “might be a little bit more diligence done by potential renters,” Warner said.

Traditional multifamily developers often find that BTR deals aren’t big enough for them to bother with, Davey said. Balcara’s “sweet spot” for the number of units in a community is between 100 and 200, he said.

“We look at deals that might be $30M, and a big apartment developer is going to say, ‘Well, there's not enough juice in it if you have a big staff,’” Davey said. “We have five people in our organization.”

Large Texas developers that have entered the BTR space in recent years include Camden Property Trust, Greystar Real Estate Partners and Howard Hughes Holdings, which began preleasing at Wingspan in Bridgeland in August 2023. The community’s website shows 85 out of 263 units are available. 

Crystal Bledsoe, vice president of multifamily for Howard Hughes, touted the benefits of Bridgeland in a statement, though the company said “there is no other BTR project news to share at this time.”

Developing BTR communities requires more work than building traditional multifamily or homes for sale, Davey said. It requires knowing about land development, the economics of apartments, setting up entities like municipal utility districts and covering large overhead costs.

“I think there’ll be some build-to-rent developers who … thought this would be easy. And I guarantee you, it’s not easy,” Davey said.

Landmark has built on its experience building student housing to develop BTR communities since they are similar concepts, Warner said. The company remains “extremely bullish” on the sector and will continue rolling out new communities, benefitting from its in-house contractor, he said.

“We think it's going to be a big part of Landmark’s growth going forward,” Warner said. “And we are strong believers in the fundamental tailwinds for the space.”

Balcara Group plans to continue exclusively developing BTR communities, Davey said, adding that it’s a demographic play that has a long runway, and his group has planned its financing strategically. 

“From the beginning, we've been in the middle of the fairway. We have a single institutional partner. We have low-leverage bank loans. We do locations that are triple-A locations, so we haven't felt any stress in any of our projects,” Davey said.

“Whereas some of our colleagues in other firms have. It's proven to be, ‘Wow, this didn't really work.’”