More Americans are opting to (or have to) rent their piece of the American Dream. When we look at the reasons behind this shift, the reasoning becomes crystal-clear:

  • Home prices skyrocketed post-pandemic. Seventy-six percent of Indiana residents were already priced out of the housing market. Adding tens of thousands of dollars to the average sale price only compounds the pressure, pushing more Hoosiers into renting.
  • Competition for homes is intense. “For Sale” signs do not stay up for long, leading to great frustration among not-so-hopeful homebuyers.
  • Millennials aren’t as likely to buy into the idea of ownership. Broadly speaking, this generation does not attach the same “value” to owning a home.
  • The job market is hot. Over the next two decades, Indiana will add some 275,000 new jobs. Where will the people who drive our economy live when they cannot afford to buy a home? Increasingly, the answer is renting versus owning.

What’s going on in the Indianapolis rental market? Let’s look at three trends at play:

1. Build-to-Rent

Build-to-Rent can provide accessible solutions to house Hoosiers. It refers to the construction of single-family homes for the express purpose of renting. This is the fastest growing segment of the US housing market, and we expect more than 13 million new “B2R” homes to be created by 2030.

Ali Wolf, chief economist with Zonda Economics, says, “Traditional builders are finding it very difficult to do entry level housing. The build-to-rent space kind of serves its purpose as being entry level housing in a market where new homes at a reasonable price point are few and far between.”

Build-to-rent homes are often designed for professionally-managed communities that may offer perks, such as walking trails, community centers, and shared spaces/features like swimming pools, playgrounds, and picnic areas. Additionally, they are not “one-size-fits-all” or “cookie cutter.” The diversity of options within the build-to-rent segment include traditional single family homes, small-lot homes, duplexes, row homes, and “horizontal apartments” (i.e. multiple units on a single property, including some that may share common walls).

Few and far between adequately describes the scarcity of homes priced for the average Hoosier. While some “settle” for renting, many more prefer it over purchasing. Build-to-rent accommodates people in both situations – as well as in a variety of scenarios when it comes to stage of life, family composition, growth plans, income, career paths, etc.

2. Constructing ADUs

What do in-law apartments, carriage houses, granny flats, basement apartments, and secondary suites have in common? They are all Accessory Dwelling Units. An ADU is a smaller, independent residential structure that shares the same lot as a single-family home. It can be detached or attached to the main home. So, whether it’s a stand-alone house in the backyard, an apartment over the garage, or a finished basement with its own entrance, it is categorized as an ADU.

According to Freddie Mac, ADU construction has increased by an average of 8.6% per year over the last decade. Not surprisingly, since they can increase the value of a home for owners (in some cases, by as much as 35%!). The most common use for an accessory dwelling is multi-generational living – Grandma and Grandpa are living in the carriage house and/or an adult child is staying in the basement apartment to save money.

Renting to supplement income is the other big use we see for ADUs, and this can be one piece of the puzzle when it comes to increasing the supply of achievable housing – albeit a relatively small piece. As the Washington Post puts it:

Many experts agree that granny flats and in-law suites will go only a small way toward easing America’s affordable housing crisis, mostly because they are built at an individual level rather than on a large scale. In a way that’s an advantage — their small impact doesn’t alter neighborhood character or add a bunch of new cars to the roads. The flip side is they’re more of a small tool in the box than a full-scale solution to affordability problems.

When it comes to achievable housing, we need as many tools in the box as possible. Some communities in Indiana have adopted favorable zoning regulations that help encourage the development of ADUs including Bloomington, Greenfield, Allen County and South Bend.

3. Out-of-State Investment

Central Indiana has become a magnet for out-of-state investors. And why not? In addition to a strong economy, job growth, terrific location, and character that blends big city opportunities with small town charm, property prices are affordable in comparison with other major cities, and they are poised to appreciate in the next several years.

In Fishers, for example, nearly 1000 homes are owned by investment companies, and a third of those are from out-of-state. While these entities used to buy “distressed” properties to renovate and rent, they are now going after homes in the $220,000 price range and then renting them.

Fishers’ mayor, Scott Fadness, says, “[For] most people, their ability to accumulate wealth in their life is through a smarter, wiser investment in their home. Those people that live in those homes as rentals, they’re never going to accumulate wealth through that asset. All of that is going to go out of state.”

While some in the Indy community call out-of-state-investors a “plague,” Fadness says he doesn’t begrudge them for doing business. But he says, “We have to look out for the best interests of the people who live here.” Investing in our own communities through achievable housing initiatives is one powerful way to do that.

Build Indiana Roots

The bottom line is that more Hoosiers are renting, whether because they want to or have to. Options need to be in line with incomes, achievable for individuals and families, and, ideally, ensure that money generated through rentals goes back into our communities.

Learn more about achievable housing – and how you can join the conversation at Build Indiana Roots.