Last edited 04 Oct 2016

Build to rent

Build to rent involves the construction of dwellings specifically for the rental market, rather than the more traditional route in the UK in which developers build dwellings which they then sell, either to householders or to landlords. Build to rent creates a longer-term business model in which income is generated over time from renting dwellings, rather than a one-off sale the profitability of which will depend on short-term market fluctuations.

On 24 April 2015, an open letter to the next government was published by Better Renting for Britain, a campaign supported by the British Property Federation (BPF).

The campaign, by developers, pension funds and housing associations is intended to promote the delivery of housing for long-term rent, and proposes that the sector will work to deliver £30bn of new housing. This, they suggest is enough to build more than 150,000 homes, housing around 350,000 people. The £30bn figure was based on a survey conducted by property agents Savills of 33 institutions, property companies and Registered Social Landlords (RSL’s) to understand their ambitions in terms of investment into the UK rental market.

The letter warns that housing targets will go unmet without additional private sector funding and suggests that the build to rent sector could play a crucial role in solving the housing crisis, improving the quality of housing and financing more development.

It proposes creating an American-style rental market in which companies own large portfolios of homes, and tenants rent for years rather than months, with inflation-linked rents. Investors earn long-term income rather than speculating on house prices going up.

The letter states, “We want to create more professionally managed rented housing, purposefully designed and built with the long term occupier in mind….. America’s $27.5tr housing market includes a mature and thriving Multi-Family rental sector. Buildings are designed specifically for rental, and offer a range of unit type and size. Developments tend to be large, located in urban centres, usually offering several hundred apartments, rendering the associated infrastructure and amenities viable. The Multi-Family sector, as it’s called, also provides lower rise housing in suburban locations to cater for a wide range of consumers including families, with facilities chosen to support their long term occupation.”

The letter made five requests from the next government to unlock build to rent investment:

  • Councils should identify how much rented housing they need and allocate land to it. It can ensure that housing is rented and not sold by agreeing covenants with developers.
  • Idle public land should be used to generate income for councils by developing rental blocks.
  • A modernised approach to affordable housing which recognises the wholly different funding structures relating to build to rent compared with housing for sale.
  • The sector to continue operating as a free market, which is vital to securing investment.
  • Work with us to promote best practice, better inform the public and help improve the perception of the entire rented sector.

Harry Downes, managing director of Fizzy Living, said, “Because we’re backed by long-term capital we can make a cast-iron commitment to not sell-off the homes we build. It means we can do so much more in offering hassle-free, high quality urban living that’s priced fairly and available for years, not months, offering a genuine alternative for Britain’s growing army of renters.”

Andrew Brentnall, Head of Funding & Development, Residential Capital Markets, at Savills, said, “Build to Rent could offer a large quantum of capital for additional homes across the UK which will further help to service the needs of an increasing number of renters in the locations that we need it most. Private renting has increased by 79% since 2003 and institutional investment is vital for its continued growth. If the considerable demand from new tenants is not met by new stock, rents will rise due to lack of supply. It is therefore very important to attract, and retain, new investment into the sector. Our forecast is that rental demand will rise by a further 1.2 million households by the end of 2019”.

In March 2016 The Urban Land Institute (ULI UK) launched the second edition of, Build to Rent: A Best Practice Guide. The first edition, launched in April 2014, set out the differentiating factors in the design, development and management of purpose-built residential accommodation. The new edition has updated sections on form and layout, sustainability, engineering and construction and fit-out specification as well as new chapters on the customer, cost and procurement and planning and viability.

In September 2016, RICS reported that 86% of landlords had no plans to increase their rental portfolio and called on the government to do more to encourage, rather than dampen, investment in build to rent. For more information see: 86% of landlords have no plans to increase their rental portfolio.

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