Among the many real estate investing strategies that are commonly seen in the market, a shifting real estate environment brought about by changing consumer demands and the financial environment are making horizontal housing a more viable investment than ever before.
While the term may be unfamiliar to some, horizontal housing has proven a lucrative option for many international real estate investors, and is gaining traction in the United States as well.
What Is Horizontal Housing?
In the rental market, apartment buildings are typically considered “vertical housing.” Apartment buildings feature other units above, below or to the side — some apartment buildings extend as high as 131 stories. With rented apartment buildings, residents typically have shared amenities and common areas, as well as maintenance provided by the property management.
Horizontal housing is similar in the sense that the property offers shared amenities, maintenance and potentially even community events. However, the rentable properties themselves more closely resemble single-family homes of one or two stories.
In the United States, this trend has largely been classified as “build to rent.” These offer large communities of detached homes, though often with a smaller square footage than a typical single family home.
Horizontal housing communities tend to be much larger geographically than vertical housing due to how they are constructed, but this requirement also provides more flexibility in how the community is designed. As a result, amenities like parks, pools and green areas can be incorporated as common areas throughout the community.
Why Horizontal Housing Has Taken Off
The number of build to rent properties in the United States has seen a notable spike since the COVID-19 pandemic, going from just under five percent of all single-family housing starts before the pandemic to eight percent by 2022. The pandemic itself is considered a direct contributor to this trend for a variety of reasons.
For example, many renters found they needed more space than an apartment could provide after spending more time working from home. Horizontal housing developments generally provide more square footage and even a small private yard, while still maintaining the amenities of vertical housing communities.
Research from Peruvian developer Ciudapolis highlights the amenities that serve as the biggest draws for residents of horizontal housing communities, with pools and other water recreation areas cited by 83% of buyers, green areas coming in second at 72% and children’s play areas being desired by 66% of buyers. Gyms, meeting rooms and social spaces were other noteworthy amenities desired by many residents.
Jorge Loza, founder of Ciudapolis, who also leads international “wakeup conferences” with world-class speakers on leadership, entrepreneurship, and business development, explains that “Disruptive smart cities that focus on these types of amenities while being supplemented with smart technology offer an incredibly attractive solution that streamlines modern living. What renters look for in a home has changed, and investors who want to make their first million in real estate need to adapt accordingly.”
Places like Peru have experienced increased demand for housing developments in more relaxed, rural areas that are closer to nature and away from the hustle and bustle of urban life. With the rise of remote work, individuals in international communities also have greater flexibility in choosing where they want to live. At the same time, they still desire access to common areas and amenities they may have enjoyed previously in vertical housing developments.
Because horizontal housing developments require a greater geographic area, they typically need to be built farther away from large urban centers. However, this serves as an advantage for investors and renters, as land and construction costs tend to be lower. This allows units to be priced at a more competitive rate, resulting in faster sales.
Economic Factors Influencing Horizontal Housing
Of course, overarching trends in the global real estate market are also playing a major role in the rise of horizontal housing. As research from the International Monetary Fund reveals, the United States is far from the only nation that has seen home prices grow faster than incomes. In the Czech Republic and New Zealand, home prices have grown over 150% faster than income growth. Countries as diverse as Iceland, Mexico, Japan, Chile, Australia, Lithuania and more have all experienced home price growth over 100% higher than income growth.
Rising interest rates enacted globally to put a halt to inflation have helped to somewhat lower the cost to buy a home, but most areas still see elevated housing prices. Combined with historically high prices, and it’s no surprise that many first-time buyers around the world have been priced out of the market.
At the same time, rental prices have surged in many areas. In 2022 in Lima, Peru, the average monthly rent for a 92 square meter (roughly 301 square feet) apartment was $792 per month. As this demonstrates, a larger vertical housing unit can quickly become cost-prohibitive in urban areas across the globe.
In these circumstances, horizontal housing provides a more affordable housing alternative. Renters have demonstrated a very real demand for living in single-family style spaces, even if they can’t afford (or don’t want to deal with) the expenses and responsibilities of ownership. In such circumstances, horizontal housing provides a good middle ground — and for investors, this creates a lucrative growth opportunity that is poised to experience even greater demand in the coming years.
The Real Estate Trend of the Future?
While vertical housing options will undoubtedly continue to play a large role in the real estate rental market, there is a clear section of the global market that desires the lifestyle that is available through “build to rent” or horizontal housing. By meeting the unique demands of today’s real estate market, domestic and international investors are poised to experience significant growth.
