When renters complain about high monthly rates, they’re often unaware of the complex economics behind new housing development. For investors and developers in the build-to-rent market, making the numbers work has become increasingly challenging in today’s economic climate. Let’s break down what actually goes into the cost of building new rental homes in America.
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The True Price Tag of Building a New Home
According to the National Association of Home Builders (NAHB), which surveyed 4,000 U.S. home builders, the average cost of building a new single-family home reached $665,298 in 2024—a staggering 67% increase from just a decade ago.
Here’s where that money goes:
|
Category |
Average Cost |
Share of Sales Price |
|
Total Construction Cost |
$428,215 |
64.4% |
|
Finished Lot (including financing) |
$91,057 |
13.7% |
|
Financing Cost |
$10,220 |
1.5% |
|
Overhead and General Expenses |
$38,248 |
5.7% |
|
Marketing Cost |
$5,633 |
0.8% |
|
Sales Commission |
$18,955 |
2.8% |
|
Profit |
$72,971 |
11.0% |
|
Total Sales Price |
$665,298 |
100% |
Why Build-to-Rent Economics Are Challenging
For build-to-rent investors, these numbers create a significant financial hurdle. The construction costs alone—nearly two-thirds of the total price—make it difficult to offer rentals at rates that both attract tenants and generate reasonable returns.
When a build-to-rent investor spends $665,298 on a new home, traditional rental yield calculations suggest monthly rents would need to exceed $5,500 just to achieve modest returns after accounting for property management, maintenance, property taxes, and other ongoing expenses.
Interior finishes represent about 24% of construction costs, creating a difficult choice for developers: invest in quality fixtures that attract renters but increase costs, or cut corners and risk higher vacancy and maintenance issues down the road.
The Space Equation: Maximizing Land Use
The NAHB reports that while the average lot size for a single-family home was over 20,000 square feet in 2024, the finished home occupied just 2,647 square feet—merely 13% of the available land.
For build-to-rent developers, this presents both challenges and opportunities. While single-family rental communities remain popular with tenants seeking more space, the economics often push developers toward higher-density solutions to maximize returns on expensive land costs.
Market Conditions Squeezing Both Sides
The current housing market adds another layer of complexity:
For build-to-rent investors, these conditions create a perfect storm: high development costs, expensive financing, and limited price appreciation potential to offset risks.
Bridging the Understanding Gap
When renters complain about $2,000+ monthly rents for new construction homes, they’re often unaware that investors may be barely breaking even at those rates given today’s development costs. The 11% average profit margin ($72,971) on new construction translates to tight yields when converted to rental investments.
The disconnect between renter expectations and economic realities represents one of the biggest challenges facing the build-to-rent industry today.
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Looking Forward
Despite these challenges, build-to-rent remains an essential component of America’s housing solution. As the market adjusts to new economic realities, investors who can strategically manage development costs while meeting renter expectations will find opportunities in this growing sector.
For more insights on navigating today’s challenging build-to-rent landscape, check out our previous article: Build-to-Rent Lessons from Thousands of Rental Price Estimates.
By understanding the true costs behind new housing development, both investors and renters can have more productive conversations about the future of rental housing in America. For more information, visit Breaking Down the Price of a New Home in the U.S..
