Britain is on the verge of a rental revolution with around £30 billion of institutional investment earmarked to build and manage homes for rent, according to a new report to be published on Monday 3 August.
The report highlights the importance of good design to the future success of the sector. Developers will need to look beyond traditional residential layouts and instead create homes that foster a sense of community.
‘Funding Britain’s rental revolution’, by Addleshaw Goddard, a law firm and the British Property Federation, a trade body, says Build to Rent could bring in substantial additional finance for housing.
Getting tenants to know their neighbours will help encourage them to stay for the long-term, saving operators money on costly voids. Key to this will be creating user-friendly ‘dwell’ areas that encourage circulation within the flat buildings.
Much of the concept around Build to Rent is borrowed from North America’s multifamily sector where listed companies own much of the housing stock.
Many of the Build to Rent schemes coming forward will include a range of communal space throughout the buildings. This could include top floor amenity decks in the place of penthouse flats allowing all renters to benefit from the views and additional space. Others will be simpler, such as a lobby area with shared seating. Crucially, all schemes will be of a decent quality.
The shift towards a professionally run rental market – with developments owned by single companies rather than multiple speculators and buy-to-let investors – promises to offer Britain’s nine million renters higher standards, better value and greater transparency with homes purposefully designed for renters, according to a new report.
Institutions such as APG, Hermes, and Legal & General, together with companies such as Grainger, Essential Living and Fizzy Living are spearheading the new sector. It comes as chancellor George Osborne has reduced tax breaks for buy-to-let investors following a Bank of England warning over the risk it posed to economic stability.
The growth of Build to Rent is good for the economy, communities, investors and consumers because:
- Extra finance for housing is unlikely to surface through existing house builders or council funded development. Build to Rent could bring in more than £30 billion over the next five years.
- It allows investors to match to long-term liabilities (such as annuities or pensions) with stable returns delivered from rent
- It reduces the amount of debt held by individuals at a time where record low interest rates are set to rise
- Build to Rent investors can take a long-term view, designing in professional management, on-site services and technology
- Residents will be offered long-term tenancies, since the homes will not be sold off.
- Landlords will encourage tenants to stay by offering onsite amenities and good customer service. In America, this is the way companies seek to beat their competition
- Councils and government departments could avoid selling off assets and instead use them to generate rental income by partnering with developers
Build to Rent has emerged as a separate new asset class, distinct from commercial real estate and buy-to-let properties that dominate the housing the private rental market. There are now dozens of high profile schemes in the works.
Around 29 percent of housing starts in London in the first quarter of 2015 were homes for rent while many predict that renters could soon outnumber homeowners, making the delivery of rental homes crucial.
Marnix Elsenaar, head of housing at Addleshaw Goddard, said:
“Build to Rent has the potential to vastly improve standards in housing and because companies invest for the long-term, they are more open to innovative design and more creative approaches which keep customers happy. Crucially, the sector will deliver additional housing supply and around £30bn of new finance could be forthcoming.”
Ian Merrick, operations director at Essential Living, said:
“By having areas you can share with your neighbours and friends when they visit, you are more inclined to stay. This is good for us, as we have greater certainty about customers staying for the long run.”
Russell Pedley, director at Assael Architecture, said,
“Build to Rent is focussed around lifestyle and not just simply about building houses. As experienced architects in Build to Rent we know, when we’re designing these schemes, that it’s as important to deliver high quality homes as it is to provide spaces that foster communities; offer professionally managed services from centralised receptions to amenity access across multiple buildings, and overall provide great places to live.”
Ian Fletcher, director of policy at the British Property Federation, said:
“Build to Rent has truly arrived, as we are now able to point to exciting new developments that are well managed and delivering quality homes for young renters. The industry, supported by us, now needs to start a conversation with the consumer, about what Build to Rent is about and what it can offer those seeking, or in need of, a home – something different from the PRS.”