Opinion blog: Consumer power hits the rental market?
To an extent, renting in the UK has been seen as a poor relation, and there is a realisation that with the housing crisis, no one size fits all solution exists.
There is clearly a focus on the shortage of housing for those in the greatest need, with social rented properties seen to be a priority. However, it is increasingly the case that the private rental market needs to provide for those who will never qualify for social or affordable renting via a local authority or housing association.
Furthermore, it may surprise some, but renting good quality accommodation can be a lifestyle choice. Why rent, if you can buy?
There are armies of people who can’t afford to buy but others who simply don’t want to.
So, what is ‘Build to Rent’ and does it provide a viable alternative?
In short, it is residential accommodation designed for renting rather than buying. It provides large pension and insurance funds, such as Legal & General, with a clear attraction.
They have the funds to develop large blocks of flats, which are let out and managed long term by a single company rather than being sold to individual landlords. This provides institutional investors with a fairly stable, long-term income stream. Whilst it is not a recognised asset class as yet, with more investment flowing into such projects, it may become a recognisable asset class for investors.
The emphasis on these schemes is quality with occupants being treated as customers rather than tenants. There is lot of thought around location, use of technology to communicate and the services provided to add to the overall experience.
The concern is that this all comes at a cost. Data shows that in London, the rent is on average 11% more in Build to Rent properties than rents in the usual rent in nearby properties. The question is therefore whether these projects are designed to meet the chronic shortage of housing for those above the social / affordable rent level or whether it is actually a lifestyle model for more affluent high earners.
The Stateside multi-family model in the US is different. There is a mature lending market for construction of multi-family housing which has a clear classification, being accommodation with more than one dwelling unit, but is typically recognised as being buildings with 5 or more separate dwellings. The tax credit system encourages investment in affordable rented schemes, which means that investors and lenders alike work in an environment where they see attractive returns through affordable housing investment. The issue is probably that there are not enough tax credits to go around.
Therefore, albeit that the USA has housing issues of its own, the ability to invest in accommodation let for affordable renting is a more recognisable structure for investors. At present in the UK the market seems to be geared more towards a lifestyle product, rightly providing excellent quality but not necessarily addressing the mass housing need in the space above the affordable / social rented line. However, it is recognised by all that this is a welcome added source of housing in the UK and there is the opportunity for it to grow to offer a greater choice to feed the ever-expanding demand.”
Paul Butterworth is a Partner in the Real Estate practice at Ashfords LLP. He advises housing clients on major regeneration and development projects, as well as on private and public finance in the sector.
Kindly shared by Ashfords LLP