Florida’s lack of restrictions during the height of the pandemic has made South Florida a desirable place for people to relocate. That has caused a surge in home and mortgage prices, pricing people out of the market, and forcing families to choose to rent instead of buying.

As a solution, investors are looking at build-to-rent, single-family communities, as affordability in South Florida continues to get worse. 

According to researchers from Flordia Atlantic University, Florida Gulf Coast University and the University of Alabama, renters in Miami-Dade, Broward and Palm Beach counties pay an average of $2,832 a month. Based on the area’s long-term leasing trends, that’s nearly 22% above what they should be paying. Developers struggle to build more units due to supply-chain shortages and rising materials costs.

“Florida is a popular destination under normal circumstances, and it’s even more desirable now because its pandemic policies strongly favored consumers and businesses,” said Ken Johnson, Ph.D., economist in FAU’s College of Business, in a release. “Landlords can charge exorbitant rents because if the existing tenants do not accept the new lease terms, other people will accept them quickly. This all points back to a persistent inventory shortage in rental units.”

Partner Marc Shuster of business law firm Berger Singerman in Miami believes build-to-rent homes could help the affordable housing crisis in South Florida. Shuster says since the Great Recession, developers nationwide have underbuilt approximately 4 million homes. 

 “Build-to-rent is perhaps the latest asset class product that, among other things, attempts to offset this issue by delivering the trappings of the “American dream” but without actually owning the home,” said Shuster. “This is the darling of the investor class right now and does serve a beneficial interest in propelling the under-housed to be able to live in a fully amenitized community.”

Investor interest in this asset class is very strong right now, Shuster said, as his firm has represented a lot of clients in the build-to-rent market.  

“The investor class is chasing yields, and heads in beds are always seen as the safest asset play,” said Shuster. “So, as cap rate compression makes multifamily pricing in cities and primary/secondary cities very pricey, the new asset class of build to rent has sprung up, largely to address the lack of affordable housing.” 

Right now, the biggest challenge for investors is finding land, as the supply is very low, so they’re resorting to other options.

“Every place land exists that isn’t in the central business district or some other urban in-fill—for example, suburbia—is where developers are eyeing places to build. Think vacant land, golf courses, existing dilapidated [homes], etc,” said Shuster. 

He pointed to numerous advantageous markets: Florida, Salt Lake City and east across the so-called smile states through Texas, Georgia and the Carolinas. ”All places that have low taxes, good weather, and a favorable business environment will win the build-to-rent play,” said Shuster. 

Miami-Dade recently adopted an ordinance that requires landlords to give notice of rent increases of about 5% at least 60 days in advance. While rent control is a solution housing advocates are calling for, Johnson says the restrictions on charging rent at market value can discourage development and lead to poor conditions. 

“We want an immediate solution to this problem, but there is none,” he said. “There is going to be a reckoning from this latest housing crisis.”

Although build-to-rent is a good alternative for people who prefer suburban single-family home living, it may not be a complete answer for people who would eventually like to own a home. 

“Demographically, the folks who couldn’t otherwise afford to live in the trappings of a single-family home or townhome would be the winners, because now they have a place to live that feels and looks like their own,” said Shuster. “However, the investor class that has tried to solve this issue is the bigger winner and of course, we cannot ignore the fact that homeownership isn’t in fact being achieved a la the American dream origins.”