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Build-to-Rent and they will come

Monday, 15 August 2016

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The past few weeks have seen a number of housing crisis articles blaming the fall in home ownership levels in the UK’s major cities on the imbalance between property prices and incomes. However, this is simply not the full story.

Attitudes towards home ownership in the UK are changing significantly, with more people choosing to rent. People like the flexibility that renting offers and are adopting a more Continental-style approach to their accommodation needs. It’s apparent that we are witnessing a cultural change, albeit a slow one, where people don’t feel that they are a failure if they don’t own their own home.

Hilary Osborne’s piece in The Guardian notes that, ‘people are being forced into the private rented sector (PRS), paying higher rents with little protection from unscrupulous landlords’, however this is an unfair summation.

Purpose built and professionally managed PRS accommodation, what some will call Build to Rent (BTR), is being planned and delivered in significant numbers across the UK. BTR isn’t however just about housing. BTR is planned, designed and built to provide sustainable communities, reassuring investors who want stable incomes from their investment. BTR investors also want a diverse range of tenants and to provide accommodation across all price points. As such, BTR will lead to more active and involved communities, accommodated in high quality, well managed accommodation. People aren’t forced into BTR and won’t be subjected to unscrupulous landlords; people want BTR and landlords want them to be happy in it.

BTR is already being embraced by a growing number of tenants. I would proffer that the 9% increase in rents in Manchester last year was due to a latent demand for BTR, with a significant supply of BTR accommodation already being built. BTR is being embraced by some Local Authorities who want sustainable communities in their area, but can also generate income from an investment in the sector rather than selling the family silver. BTR is being embraced by investors and to some extent by Central Government. BTR is here to stay, with £30bn of equity ready to invest and those accommodated in the sector forecast to rise from 20% now to 27% of total residential accommodation within the next five years.

Concerns have been raised that the shift to renting privately can reduce current living standards and future wealth, with implications for individuals and the state, however these are misplaced. Living standards will be enhanced by BTR with better service and higher quality accommodation for those who choose to live in it.

There is also the possibility that with a fully functioning BTR market, lower demand for for-sale housing could lead to falling house prices and thus greater affordability. It’s certainly apparent that, at the least, BTR schemes will be competing with each other and this will most certainly lead to ever increasing quality and the potential for rent reductions.

For more information, please contact Alastair Carmichael, Head of Real Estate Finance at Bilfinger GVA on 020 7911 2201 or alastair.carmichael@gva.co.uk