As the housing market sees fewer buyers, the demand for rentals increases. The market for build-for-rent properties has risen in response to this growing rental trend. These are detached units built with long-term rental in mind, generally owned and managed by corporations. They include small-lot and row homes, duplexes, and horizontal apartments. Consider how these builds positively and negatively impact ESG and what investors can do to be more sustainable.
Environmental, Social, and Governance in the Build-for-Rent Industry
Professionals in the solar and insurance industries understand the importance of evaluating any investment’s impact on ESG, particularly environmental factors. The “E” in ESG focuses on a property’s carbon footprint by addressing waste management, energy consumption, and water usage. As more companies build new properties, an important question is how the rise in built-for-rent housing impacts the environment.
The social component of ESG focuses on how these new builds impact tenants and the community. This can include infrastructure support, health and wellness, and contributions to urban areas.
Finally, the governance component addresses the human side of these corporations participating in building to rent. What are their core values, such as their stances on diversity, inclusion, equity, and management? In recent years, all of these ESG factors have come to the forefront of commercial real estate and significantly impact investor evaluations.
Positive Impacts of Built-for-Rent Housing on ESG
Before 2021, investors built an average of 31,000 BFR properties annually. In 2022, 68,000 build-to-rent properties hit the market. What is the environmental impact of this industry, and what sustainable materials can builders use to reduce their carbon footprint?
Environmental Impact and Energy Efficiency
Build-for-rent construction in urban communities helps reduce energy insecurity, making it easier for low-income homes to access sustainable energy sources, better ventilation, and more efficient appliances at affordable prices. Rentals generally make better use of space in many ways:
- Decreasing the carbon footprint of single-family swimming pools
- Offering a single playground for multiple homes
- Reducing square footage used per person and lowering energy usage
Larger homes use more space and materials and serve far fewer people. BFR housing, particularly complexes and small-lot homes, is more efficient than massive custom builds, which are less popular with millennials.
Sustainable Building Materials
Modern construction companies can access greener materials to reduce carbon emissions and make their companies more sustainable. For example, builders use a lot of concrete, which requires large quantities of clay, limestone, sand, and marl. Fly ash is an alternative means to produce cement using a byproduct of coal combustion that otherwise is just thrown in landfills.
There are other sustainable building materials increasingly in use:
- Steel and aluminum are sustainable metals that are easy to recycle.
- Bales of straw are an efficient alternative for synthetic insulation.
- Even compacted dirt can create sturdy walls and floors.
Some companies even cut back on lumber usage by implementing recyclable plastics, although this practice is relatively new in build-for-rent production.
Negative Impacts of Built-for-Rent Housing on ESG
When new builds increase, a negative impact on ESG is unavoidable. As consumers, including renters, become increasingly aware of corporate sustainability, investors must know how a BFR project affects ESG long-term and short-term.
Environmental Impact and Energy Efficiency
Constructing a two-bedroom house can produce as much as 100 tons of carbon dioxide emissions. Multi-building apartment complexes have an exponentially higher carbon footprint. However, most of the environmental impact of a home or commercial building comes from occupancy. Buildings make up the majority of energy usage in the United States, and with the rise of build-for-rent properties, the concern for ESG construction heightens.
Non-solar energy options in BFR projects also increase long-term carbon emissions. However, companies that incorporate solar solutions can shift their negative ESG impact to a positive one, creating a better environment for renters and proving the company’s public commitment to sustainability.
When you think of commercial and residential construction, the most obvious material is lumber. Companies that make use of lumber without contributing to sustainable forestry are a strain on the environment. In addition, the use of non-recyclables increases waste that ends up in landfills.
The Importance of Considering the Environmental Impact of Build-for-Rent Projects
The build-for-rent trend can reduce negative environmental impacts, such as wasteful building material usage and lack of long-term energy efficiency, by focusing on ESG best practices for construction. It starts with sustainable materials and actively approaching investments with ESG in mind. To better understand the ESG impacts of your investment, contact ESG Property Consultants and potentially turn a gap into a return.