Build to Rent: the saviour of the Private Rented Sector in the UK?
By Katie Herbert, Associate Director
The Private Rented Sector (PRS) is facing some of the biggest challenges in decades. Supply has fallen by a third in just 18 months, whilst demand for rented accommodation has risen to more than 50% above normal levels. The PRS often has higher overcrowding rates and offers lower quality than privately owned accommodation. This is where Build to Rent (BtR) represents the future of housing development in the UK, but only if a stable policy environment with long-term certainty supports its growth.
Since 2012, BtR in the UK has flourished. From its watershed moment at London’s Olympic Village becoming the first BtR site in the UK, to subsequent investment which has increased by 335% in a decade, developers and institutional investors have piled over £34 billion into the sector to date, breaking new records each year. Yet, only 4% of the rental market in London and 2% in the rest of the UK comprises BtR homes, suggesting that the tenure has a long way to go to reach its pinnacle.
Conversely, the PRS has faced increasing hurdles. It is estimated that 50,000 Buy-to-Let (BTL) private landlords have left the sector since 2019, chased out by high taxes, increased regulation, and lower yields. This has led to an extraordinary collapse in supply, pushing rents to record levels during a time when households face the worst squeeze on real incomes since World War Two. The void between consumer need and economic reality is widening.
The Renters Reform Bill has at last been published and been largely interpreted by the industry as pro-tenant and anti-landlord, which may act as further disincentive for private landlords to enter the sector. Whilst speaking to the National Conservatism conference, Mr Gove conceded that there “simply aren’t enough homes” in Britain. So, can BtR be everyone’s silver bullet?
Instinctif Partners’ real estate and built environment specialists recently attended an industry BtR forum hosted by Movers & Shakers, titled, “Build to Rent and Housing Policy – Finding the Right Balance”. Joined by sector heavyweights such as Get Living, Greystar and Quintain, as well as local government representatives, debates were shaped around the main barriers currently facing this growing sector – namely, the threat of policy blocking supply.
Although there was a universal groan when the ongoing planning crisis was mentioned, the biggest reaction came at the prospect of government-enforced rent controls. The British Property Federation (BPF) rightly pointed to the negative effects of recent Scottish rental reforms, squeezing supply in already restricted city markets, but most worryingly, seeing huge investors walk away from deals. The BPF found that of 14 investors interviewed with a combined £15 billion of BtR assets, nine judged Scotland to now be unattractive, including four who view the country as un-investable under current conditions. Despite its arguably doomed nature, this is an approach that has recently been mooted with conviction from London Mayor, Sadiq Khan. Labour leader Kier Starmer has not yet given his position on the topic (as of the time of writing this blog, May 24 2023), suggesting that he now leads a very different party to his predecessor, Corbyn, and one that can be constructively engaged.
We saw the clear impact that policy can have on markets, almost instantly, thanks to the fallout from the Truss/Kwarteng mini-budget in September that went down in history for all the wrong reasons. It is important that the BtR sector ensures that its voice is heard on this topic now, providing a key opportunity to fill in the detail to Labour’s housing policy ahead of 2024’s general election. Kier Starmer recently announced he will “back the builders, not the blockers”, with more announcements likely to come in the next few months. Whilst his speech gave a nod to some encouraging themes including the return of housing targets, there is ample room for BtR developers to help shape the small print.
Creating a stable policy environment, both for BtR and wider economic growth, is unilaterally supported by the sector. One of the key takeaways from the Movers & Shakers conference was the need for the private and public sector to work much more collaboratively, from ideation through to planning and implementation, to ensure a combination of landlord types and tenures that has a genuinely positive impact on supply and diversity for longstanding sector resilience.
Here is Instinctif Partners’ summary of the main policy asks from leading developers at the event:
- Rent controls – taking this off the table as a policy option, to avoid unintended consequences.
- Planning reform – singing from the same hymn sheet as much of the wider housebuilding sector, the planning system must be easier and quicker to navigate, with opportunities to regenerate our ailing town centres with increased footfall and spending power.
- Sector collaboration – BtR developers and consultants need to come together to better articulate the sector as a force for good, tackling the housing shortage, providing placemaking, delivering high quality housing, and the potential to provide flexible later-life options against the backdrop of an ageing population.
As a vital cog in the wheel to maintain positive housing supply, whether BtR’s success story will continue its upwards trajectory may depend on the how effectively the stakeholders involved communicate and whether we have politicians who will listen.
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