Real Investor Radio

Episode 73 | Future of Home Building, Build to Rent Opportunities, Expectations for 2025 with Tony McGill

January 7, 2025

Episode Summary:

In this episode of Real Investor Radio, Craig Fuhr and Jack BeVier engage in a comprehensive discussion with Tony McGill, Senior Managing Director at Zellman and Associates, about the current state of the housing market and its future outlook. They explore the dynamics affecting home builders, the impact of interest rates, supply constraints, and the opportunities within the build-to-rent sector. The conversation also touches on potential legislative challenges and the evolving landscape of real estate investment.

Overview of Episode 73

Craig Fuhr and Jack BeVier hosted Tony McGill, Senior Managing Director at Zelman and Associates, to discuss the housing market. McGill shared insights into housing trends, industry challenges, and potential opportunities for 2025 and beyond.

Current State of the Housing Market

The housing market remains fundamentally strong, despite challenges. Over the last 15 years, the industry has experienced remarkable growth due to post-GFC recovery and favorable interest rates. Public builders now operate with significantly less leverage, maintaining strong cash reserves and profitability.

Key Factors Shaping the Housing Market

McGill highlighted essential dynamics influencing the market:

Supply Chain Limitations: Capacity issues across land development, construction, and materials restrict growth potential.
Affordability Pressures: High prices, limited supply, and rising interest rates affect consumer access to housing.
Speculative Building: Builders increasingly focus on speculative projects to streamline operations and help buyers secure rates faster.

Projections for 2025

While top-line revenue for public builders may grow 5% annually, margins face pressure from rising costs and competitive pricing. The housing market’s growth potential is capped by supply chain constraints, making steady, incremental progress the most realistic path forward.

Opportunities in Build-to-Rent

McGill emphasized the increasing appeal of the build-to-rent (BTR) market:

Demand for rental homes is robust, with institutional capital eager to invest.
New BTR projects are emerging as viable alternatives to older rental stock.
Rising interest in BTR aligns with shifting consumer preferences for quality rental housing.

Legislative and Market Challenges

The housing market faces legislative scrutiny, particularly regarding large-scale rental portfolios. However, McGill noted that the industry continues to mitigate these concerns through transparency and proactive communication.

Opportunities for Investors

Entrepreneurial investors can find opportunities by partnering with experienced teams and leveraging strategic business models. In the build-to-rent space, collaboration with both domestic and international capital can unlock growth potential.

Looking Ahead: Deals and Growth

The industry will likely see increased merger and acquisition activity in 2025. Public-to-public and public-to-private transactions will shape the landscape as companies seek growth through scale. Additionally, new opportunities may arise as capital shifts from traditional sectors like multifamily into single-family rentals.