Build To Rent Projects Answer Housing Shortage, But Factor in the Risks
 
By Michele L. Norton, AAI, CRIS
Hub International

There’s a national shortage in housing availability in the U.S. as soaring prices during a time of inflation and limited inventory keep the squeeze on renters and buyers alike.
 
It’s particularly significant for single family homes. The cost/supply disparity has made Greater Boston one of the nation’s most expensive metropolitan areas, as the median single-family home price has soared to nearly $900,000.  
 
One solution being pursued by Massachusetts is the ambitious Affordable Homes Act, which aims to boost production and affordability, and add 220,000 new housing units by 2035. But that’s a tall order, especially in an uncertain regulatory environment where tariffs, immigration restrictions and other actions stand to increase inflation and costs, potentially curtailing progress.
 
Another possible solution lies in the alternative housing niche of build-to-rent (BTR) single family homes. This fast-growing construction arena accounted for 9% of all single family housing starts in 2024, reaching 90,000 units in 2024.
 
Builders and investors are finding this market a viable option for meeting housing demand. But questions over the regulatory environment aside, built-to-rent projects come with risks that must be factored into project planning. Here’s an overview.
 
The distinctive risks of single-family BTR projects
Numerous variables will impact the success of these projects and the extent of their returns over the short and long terms.
 
The price of land is a big influence over returns, and that has curtailed development in markets where demand for housing is the greatest. Also of concern are issues more common – and damaging – in a build-to-rent than in a build-to-own community. Rent delinquencies, for example, have a direct effect on the developer’s financial wherewithal to maintain the property. Plus, there’s an element of unpredictability when many tenants are short-termers just waiting to buy a house.
 
But there are unique, longer-term vulnerabilities that must be recognized and proactively managed when the project is in its initial planning stages. Three major issues include:
 
Insurance voids on conversion. It’s not unusual for BTR properties to be converted to individual ownership once market conditions improve for single-family home ownership. This is when investors can seize the opportunity to optimize their returns. But without adequate planning around their state’s statute of repose – the time limit for claim filings – the liability coverage can be cancelled in the event that the time limit on claims has not expired.
Construction defect risks. These claims are spiking as interest rates rise, there’s a trend for nuclear verdicts on claims and pricey custom home-building is booming. projects. A surge in claims could be costly.
Heightened class action risk. A BTR project occupied by renters and owned by a single investor is more attractive to insurers as renters don’t have the standing to form a claimant class. But the risk of class action litigation (if defects are present) rises exponentially when the homes are converted and sold to individuals.
 
How to avoid conversion risks
 
Three options are worth considering for managing a future BTR conversion.
 
1. Sell during the repose period. The surest solution is to plan to sell the homes within the repose limit. That involves paying a (costly) premium for insurance coverage that removes the limitation of conversion. Even if a near-term conversion wasn’t planned, it could become a problem for subsequent investors.
 
2. Investigate structural warranties. A traditional builder warranty, like a home warranty, is not negligence-based. If something breaks, a deductible is paid and the insurer pays to fix it – all at the building level. Adapting that warranty with a traditional General Liability product allows for continued, if limited, structural protection even if the traditional liability insurance had been voided.
 
3. Think about Inherent Defects Insurance (IDI). This type of insurance is a newer option in North America that HUB International has repurposed for BTR conversions. It serves as an extension of Builders Risk insurance, providing protection against defects like leaks and building collapses beyond the end of the construction period.
 
Build-to-rent developments are important in a pressured housing market. The right risk management strategy will enable builders and investors to make the most of the opportunity without exposing themselves to undue risk.
 
About the author
Michele Norton is a Vice President and Account Executive in construction for global insurance brokerage HUB International New England, LLC.
 
With more than 30 years in the insurance industry, in various capacities, Michele is technically proficient in contract and coverage reviews, and has strong carrier relationships that allow her to negotiate terms and conditions that address her client’s contractual obligations. 
 
Michele is a licensed Property Casualty broker in the Commonwealth of Massachusetts and has earned her Accredited Advisor in Insurance (AAI) and Construction Risk and Insurance Specialist (CRIS) designations.