Image: Istock
The benefits of Build to Rent
How this growing sector is increasing the number of rental homes in the UK and helping to create and sustain new communities
GROWTH, REGENERATION & DEVELOPMENT
Simon Chatfield
Founder, BTR Residential Advisory Services
Simon Chatfield
Founder, BTR Residential Advisory Services
Issue 74 | October 2024
The Build to Rent (BtR) sector has the potential to grow faster and significantly boost the supply of new, high-quality rental homes. It can help address the national housing crisis at a time when the traditional Buy-to-Let sector is shrinking, and other types of new homes are struggling to be delivered.
When considering BtR it is important to recognise that the sector comprises several different elements and, although they share the same underlying principles – high quality, purpose-designed/built homes with professional management – they serve different rental markets:
- Single-family housing: typically clusters of family-sized homes in suburban locations in wider mixed-use developments with limited on-site amenities and staff presence.
- Multi-family housing: normally self-contained studio to two-bedroom apartments in larger blocks in urban locations with significant on-site amenities, such as gyms, lounges, work hubs and gardens, and a dedicated on-site management presence.
- Co-living: usually smaller studio homes in larger blocks with a high level of on-site amenities, shared spaces and a dedicated on-site management presence.
“The institutional investor interest remains strong and is there to support growth across all elements of the BtR sector.”
Growing sector
There are now around 115,000 completed BtR homes in the UK and this number is set to grow to over 260,000 as the homes under construction and with planning consent are completed.
While this only represents a fraction of the UK housing stock, the rate at which BtR is contributing to net additional dwellings is growing fast.
According to Knight Frank, BtR was delivering 1% of net additional dwellings a decade ago, but completions so far this year have accounted for 9% of all new housing delivery – a significant shift for the sector and reinforces the critical role it can play in addressing the housing crisis.
This growth is supported by the continued strong interest from institutional investors and investment in the sector growing year-on-year, with over £100 billion already invested and more funds available waiting to be deployed.
However, the sector, like all housing development, continues to face significant challenges such as the (understandable) increased regulation requirements, significant build cost inflation over the past few years and high interest rates – but with inflation now starting to drop, the outlook is improving. The institutional investor interest remains strong and is there to support growth across all elements of the BtR sector.
number of BtR homes in the UK (including homes under construction and with planning consent)
BtR contribution to all new housing delivery this year
£100bn
already invested in BtR with more funds available to be deployed
Overlooked contribution
It is worth noting that the role of BtR in creating and sustaining new communities is often overlooked. There is a view that BtR developments are full of highly paid young professionals who move in and only stay a short time, leading to a transient local population. But analysis of who lives in BtR homes tells a very different story.
The ‘Who Lives in Build-to-Rent’ report by British Property Federation (BPF), Business LDN and dataloft in May 2023 shows that, in London, BtR residents are employed in many different industries including leisure, retail and the public sector, and are likely to have an income of between £20-£45,000.
BtR operators go to great lengths to support residents, provide services and facilities and look to build communities. They offer long-term tenancies to provide certainty for residents because they want them to stay for as long as possible. In London, nearly a third of residents choose a three-year tenancy and more than 55% of residents choose to stay in their homes after their initial tenancy ends.
Affordable options
It's also important to recognise that BtR developments can deliver genuinely affordable housing through the inclusion of Affordable Private Rented (APR) homes. While these may not be Affordable homes with a capital ‘A’, these homes are typically built to the same standards as the market rent homes, benefit from access to the same service and facilities, and can be genuinely pepper potted and targeted to local people at affordable rent levels. The inclusion of APR homes is becoming increasingly important for institutional investors as part of their Environmental, Social and Governance commitments.
How much of an impact BtR can have on the housing crisis is, in part, down to the support the sector receives from the new Government, but the potential exists for its role to be significant.
“BtR developments can deliver genuinely affordable housing through the inclusion of Affordable Private Rented (APR) homes.”
