October 2020

‘Build to rent’ may be a phrase you’re familiar with, but perhaps not have come across directly, yet. Happily, it’s one of those phrases that means more or less exactly what you think it might: it’s the term used to describe residential developments built specifically for the rental market.

But why would people do this? – surely the idea is to build houses to sell and make a quick profit, not rent it out, no? – well, yes - but also, no.

Call it a reflection of our times, but in consequence of the number of people to whom the traditional housing market is inaccessible, in recent years the private-rental/buy-to-let market has been doing record business. So perhaps it was only a matter of time before investment managers and pension funds decided to get in on the action, too, recognising that attractive long-term yields could be pulled from high quality new-build rental stock – meaning they can either retain the developments for themselves, or sell them on as attractive investments in the future.

At this point, it’s important to note that build to rent schemes, in the sense we know them now, are far more than ‘just’ the erection of a tower block that is immediately let out on ASTs – successful, high-end schemes are well-managed and designed to create communities and promote well-being (or at least they are if the developers/promoters want them to make it through to planning approval).

As a modern concept, ‘build to rent’ has been around since the early 2010s, around the time the Olympic Park was built in Stratford, and since then billions of pounds have been poured into the sector. According to Savills and CBRE, build to rent investment in the UK totalled £2.6 billion in 2018 and in the first three quarters alone of 2019 a further £2 billion was invested into the UK market.

Needless to say, the COVID situation rather put a dampener on things towards the end of 2019 and had a negative impact on investment activity in 2020 as project delivery slowed, but ultimately it’s a fairly safe bet to say that as a product ‘build to rent’ won’t be going anywhere soon. Savills estimate the sector could come to be worth £550 billion by the time it reaches full maturity.

As of August 2020, research by the British Property Federation indicated that as many as 167,853 build to rent homes had been built in the UK with these numbers forecast to continue to grow fast as further schemes are progressed.

So, is this growing trend a good thing. Personally, I would say yes, on the basis that high quality, professionally managed accommodation is being created so as to offer a comfortable alternative to the, perhaps, tired rental stock that many of us have experienced. It obviously can’t be viewed as a ‘forever’ solution, but for now, for the many people who are not currently able to make it onto the housing ladder, it opens up new options.

Also, the Government guidance concerning build to rent schemes indicates that at least 20% of the dwellings created have to be offered at an ‘affordable rent’ (which in this context means market-rent less twenty percent). This means the schemes should be creating locally affordable rental homes, which at the present time can only be a good thing – especially as the Government recommendation is that all homes constructed on these developments must be at least offered on tenancies of 3 years or more, meaning that tenants have a decent level of security and therefore a reasonable ability to make plans for the future.

So all of these things said, it seems to me that many of the principles underpinning the larger schemes and the planning process relating to them can be deployed on smaller scale developments than those under undertaken by equity funds with billions of pounds at their disposal – and given the increasing call for affordable homes in local areas, there has to be a great opportunity within this market for local developers and/or landowners with the resources and inclination to create an asset for the future.

Please do give me a call or drop me an email to discuss potential ways of making these schemes work for you.

Expert
Graeme Burslem
Associate