To say the homebuilding industry is confused would be quite an understatement. The headlines around residential construction are gloomy at best. High interest rates—currently around 7%—elevated median home prices, while flat existing home sales and an ongoing shortage in new homes driving demand and exacerbating these other issues provide a bleak outlook, according to Forbes. Consumer confidence in purchasing a new home has not increased since 2021, according to Fannie Mae's Home Purchase Sentiment Index®. In short, “it's a bad time to buy," the survey said.

These factors are combining to create a seemingly no-win scenario for homebuilders and those who insure them. However, we are seeing a dramatic uptick in the number of build-to-rent (BTR) projects across the Southeast, particularly in Georgia, Tennessee and the Carolinas. For example, Atlanta's BTR inventory has increased by 380% since 2017, according to Atlanta Agent Magazine. 

What Is a Build-to-Rent Home?

BTR is a relatively new concept in the housing industry. It's a hybrid approach to multiunit construction that provides traditional, starter-level homes for lease instead of purchase. Much like apartments, an entire neighborhood is constructed at once. Unlike the traditional apartment complex or building, the units are typically free-standing or clustered, much like for-purchase dwellings. 

Unit construction is standardized to make ongoing maintenance and upkeep more efficient. Builders can customize their communities to meet the specific tastes of their tenants. Municipalities are also now more open to the traditional look and layout of BTR communities versus urban-style apartment complexes or towers.

For consumers, there are considerable advantages to renting these homes. The amenities offered in BTR communities are on par with multifamily developments in larger cities, as well as traditional suburban subdivisions. Residents enjoy the privacy and space of a detached single-family home without the maintenance and upkeep of ownership.

With more and more people being priced out of homeownership yet wanting more space than an apartment, BTR is among the fastest-growing asset classes within commercial real estate, according to a report from Berkadia. The report projected that the number of BTR units delivered in the U.S. in 2023 will grow 21% over last year.

Build-to-Rent Construction Insurance Coverage

For homebuilders specializing in smaller and medium-sized developments, transitioning to the BTR model can be worthwhile. A proven track record of success will go a long way in attracting financing for the project.

In the last couple of years, there's been a huge influx of capital into the sector, with major players investing billions in BTR projects.

But homebuilders need to insure the buildout of these communities. Here's what independent agents who are interested in entering this niche should consider:

1) This market needs significant amounts of expertise. If you're looking to build a BTR book, you can't dive in head first. Homebuilders need agents that provide value by helping their business reduce job site risk, provide employee safety training, handle workers compensation filings and administration, and who will routinely revisit and update their coverage based on the volume of starts.

2) Partner with an experienced carrier. Most of a homebuilder's risk comes from the subcontractors active on the site. Agents can help clients choose a carrier that is experienced in screening subcontractors and their individual coverages. Look for an insurer with years of experience in new home construction coverage. Ask if they have a specific program for homebuilders.

3) Think through unique policy needs. While items such as general liability, property coverage, workers comp, employee practices liability insurance and hired and non-owned auto shouldn't be overlooked, it's also wise to consider covering specific losses related to soil sedimentation, mold, silica and synthetic stucco damage.

Opportunity in a Confused Market 

With a cumulative affordable housing shortage estimated at around 4.3 million total units, according to Zillow, the vast majority of metro areas in the U.S. will continue to suffer from a lack of affordable, single-family housing for both renters and homeowners. This outlook, of course, is for the foreseeable future and bodes well for BTR.

McCay Bowdoin is vice president and homebuilders practice lead for Oakbridge Insurance, an independent insurance agency in Roswell, Georgia. He has over 20 years of experience insuring homebuilders and other operational-intense businesses across the Southeast. Oakbridge Insurance is a Top 100 Independent Insurance Agency and a leader in covering the particular risk needs of the Southeast's homebuilders.