Over many years and for many reasons both the electorate and politicians have emphasised homeownership – it taps into people’s aspiration and desire for security. However, the housing crisis we face today is complex and the solutions must be varied. The Private Rented Sector - the often misunderstood and undervalued tenure – is having somewhat of a renaissance. How can this tenure and, more specifically, Build to Rent, play a more prominent role to help the crisis?
Understanding the sector
As the tenure is less well understood, it is crucial we understand the terminology. Build to Rent (BTR) is purpose-built residential accommodation that this built specifically to be rented out, with ownership retained either by an investor or a registered housing provider. BTR has grown out of a broader Private Rented Sector (PRS), which also captures the private buy-to-let properties. Indeed, neither form of housing is new but both are currently the subject of significant interest from developers and investors alike.
The sector has had a turbulent time for the last 70 years. With post-war rent control, shifts in legislation to decontrol, re-control and then deregulate the sector, the legislative shifts have brought uncertainty. Indeed, due to the combination of shifts in government policy and the increasing desire for homeownership both the sector’s contribution and investor interest waned.
In more recent years, there have been numerous initiatives to encourage growth in the sector. The coalition Government launched its flagship funding scheme (the £1 billion Build-to-Rent Fund) in December 2012 and in 2013 the PRS Taskforce was set up, bringing together policy-makers, developers, housing associations and institutional investors to accelerate the status and development of PRS housing.
Figure 1: Tenure breakdown in England - 1980 to 2014/15
Source: EHS, NLP analysis
In some ways, the renaissance of this sector has stemmed from necessity – despite people wanting to own, prices are rising faster than earnings. In this regard, PRS meets the demand of the increasing number of young people with relatively lower disposable income that want to live in cities to be close to amenities as well as avoid long daily commutes. Institutional investors are seeing the potential to provide long-term rental opportunities, recognising the change in rental patterns across the UK – particularly in London where there are now more private renters than owners with a mortgage.
PRS housing in the UK now comprises 18% of housing stock
[i]. To date much of the growth in this sector has been led by ‘buy-to-let’ landlords – who have changed an existing property from one tenure to another - rather than institutional investors that provide additionality. However, times are changing and we are now seeing a surge in institutional interest in the BTR market. Knight Frank report that the BTR market is set to triple in size by 2020 and that this will take the total investment in this sector to £50 billion over the next five years
[ii] - meaning 250,000 new homes according to The Better Renting Campaign.
How can Build to Rent contribute to solving the housing crisis?
Given the country’s urgent need for extra homes, a key benefit of BTR is its ability to bring housing units to the market quickly and at scale. Unlike the build-to-sale model where the controlled release of housing to the market is commercially beneficial, there is a real incentive for BTR developers to construct their buildings and let units as soon as possible. By way of example, the rate at which homes can be sold is 1 a week in the regions and between 1.5 and 2 in London, whereas lettings’ rates can be around 10 to 15 units per week[iii].
Build to Rent doesn’t only boost the number of homes, it is also mindful of quality. A BTR development will be continuously maintained and kept in good condition so that it decreases void rates and remains attractive to prospective tenants. Moreover, additional thought is given to the services on offer and the amenities in the neighbourhood. In a number of BTR projects that I’m currently involved with, the developers are actively looking beyond their buildings and are thinking about how their developments integrate with - and improve - the community and how local shops and businesses can be supported to help create a thriving and vibrant community.
Clearly, Build to Rent has a range of benefits that other tenures do not have. It will play an increasing role in solving the housing crisis as it is explored with greater enthusiasm by politicians and investors. However, this isn’t to say there aren’t any barriers – there are key obstacles the sector and politicians have to overcome if it is to fulfil its potential. These barriers will be explored in the next blog post in this series.
[i] LaSalle, ‘The Case for UK PRS’, May 2015
[ii] Knight Frank, ‘Private Rented Sector Research, Tenant Survey 2015/16’
[iii] Investment Property Forum, ‘Mind the viability gap: Achieving more large-scale, built-to-rent housing. A briefing paper, September 2015
