By Chris Cordes
Build-to-rent (BTR) developments continue to set new records each year, with 90,000 units under construction in 2024, according to the National Association of Realtors.
Maintaining momentum with 2023 levels, this growth rate represents a 50 percent increase in BTR housing starts since 2021 and relates directly to housing affordability challenges and the rising costs of homeownership.
BTR offers renters, particularly aging Americans approaching retirement, housing options with homeownership-like benefits without the maintenance responsibilities and accompanying increasingly prohibitive costs. These benefits include more living space, privacy, yard access and dedicated parking.
While many experts see BTR as a potential solution to the “missing middle” in housing availability, market conditions and persistent challenges mean this sector still has considerable ground to cover before making significant headway in fulfilling middle-income housing needs.
Understanding the Missing Middle Housing Segment
Real estate that serves the so-called missing middle encompasses a range of housing types bridging the gap between conventional apartment complexes and single-family homes. These include horizontal apartments (single-level rental units arranged in a neighborhood-like layout rather than stacked vertically), townhomes (both traditional and single-level) and single-family detached homes designed to integrate seamlessly into established neighborhoods while preserving community character.
From an economic perspective, these housing options provide affordable alternatives for middle-income households increasingly priced out of homeownership markets. For investors, the BTR segment represents an opportunity to enter a space with robust, growing demand driven by two key demographics: Baby Boomers looking to downsize and millennials forming families.
BTR’s Impact Through Strategic Infill Development
BTR most effectively addresses the missing middle renters through infill development — building new housing on underused or vacant lots within existing urban areas — in established neighborhoods and emerging markets where land availability is limited.
This approach is especially vital for higher-density areas where housing affordability is increasingly challenging, particularly in markets like New York City, Los Angeles, San Diego, San Francisco and Boston, which S&P Global identifies as the nation’s most expensive homeownership markets.
Infill development proves ideal for missing middle opportunities, especially when targeting renters from key demographic segments. Baby Boomers are attracted to established neighborhoods with existing amenities, such as walkable dining and entertainment options, combined with minimal home maintenance responsibilities. At the same time, millennials are seeking additional space for growing families and remote-work arrangements in communities where they’ve established their careers.
Navigating Persistent Challenges
While the BTR segment offers many opportunities, the industry faces several obstacles in addressing missing middle housing needs, including restrictive zoning codes, escalating land costs and tightening lending conditions. Zoning regulations have been particularly frustrating for potential missing middle developers, as exclusionary zoning often limits higher-density development precisely where it’s most needed, especially in infill development communities.
These zoning challenges exacerbate another significant hurdle: competition for land. BTR developers frequently struggle to match prices offered by traditional homebuilders, especially in markets where for-sale housing demand remains strong. This competition is increasingly evident in secondary markets where interest in for-sale single-family development has intensified to capitalize on high delivery prices.
As prime infill lots are claimed by single-family developers, BTR projects are increasingly pushed toward suburban locations in secondary markets, where inclusive zoning and developable acreage are more accessible. However, these communities typically feature larger developments of 100-200 homes and townhomes with traditional multifamily amenities like clubhouses and pools — which don’t address all the core missing middle housing needs that urban infill locations provide.
Industry stakeholders are monitoring these infill projects closely, paying particular attention to whether the single-family market continues its upward cost trajectory, creating increasingly insurmountable barriers for homebuyers. A shift from for-sale to for-rent models could potentially positively offset impacts faced by single-family developers bringing units to market.
Strategic Approaches for Missing Middle Advancement
While many industry stakeholders view BTR as a tool to address the missing middle housing issues, the challenges have complicated implementation. Moving forward effectively will require several key developments over the coming years, including community policy shifts, government engagement and education about the community benefits of missing middle housing.
Housing advocates seeking increased missing middle housing options may find success by collaborating with local governments and neighborhood associations to highlight BTR’s potential positive effects. Proactively addressing NIMBY concerns from stakeholders is essential when promoting missing middle housing through BTR development. Local governments can also support these efforts by offering prospective missing middle BTR developers zoning variances, special use permits and tax abatements to encourage appropriate growth.
Looking Ahead
Stakeholders interested in pursuing missing middle housing solutions through BTR will need both tenacity and patience as the housing market continues adjusting to fluctuating pricing conditions, restrictive zoning practices and land scarcity. With persistence and strategic collaboration, BTR can begin making a more substantial impact on housing options in communities where demand is highest.
Chris Cordes is director of multifamily investments with PPR Capital Management, a Wayne, Pennsylvania-based private equity real estate investment firm.