Earlier this summer, retailer John Lewis announced a major strategy departure. The ‘never knowingly undersold’ partnership was dipping its toe into the build-to-rent market with plans to construct 10,000 properties to let on its carparks and warehouse sites. Other household names, including the likes of Lloyds, Aviva and Goldman Sachs, have also announced plans to invest in residential property.
For many people in the UK, the term build-to-rent is a new one. Traditionally, most British homes in the private rented sector are owned by buy-to-let landlords. Things are changing, however, especially in London, with the growth of the build-to-rent business model, more commonly seen in Europe and the US.
To explain how build-to-rent works, we answer some of the questions we’re most frequently asked about investing in this sector.
Build-to-rent is pretty much what you’d expect. Housing developments of high-quality homes constructed exclusively for renters – not for sale to people looking to buy.
There has been a big increase in the demand for rental properties over the past few years – along with changes to the needs and wants of renters. A transient workforce, looking for quality short-term lets and millennials with higher standards than previous generations, are among the factors behind the trend.
Some early build-to-rent schemes were in the 2012 Olympic Village in Stratford, east London which saw athletes’ accommodation converted into rental homes. Other developments followed, often backed by the government’s home building fund.
Build-to-rent is a growing trend, particularly in London. From fewer than 20,000 units in 2019, there are now more than 100,000 build-to-rent homes completed or under construction.
A big difference between build-to-rent and the more conventional private landlord set-ups is the focus on service. Build-to-rent developments tend to come with on-site management and more amenities and facilities – gyms, pools, resident lounges and work spaces, for example. They often provide more services too – concierges, cafes and laundries.
For tenants, the benefits include the quality of the accommodation and the added extras. As each block has one landlord, who is responsible for managing and maintaining the units, this should, theoretically, make it easier to get problems resolved quickly.
Longer tenancy options, of more than three years, are often available, giving security of tenure. There’s a well-defined complaints scheme and the amount of rent and the formula for increases are laid out from the outset.
Schemes often come as part of wider regeneration programmes. The developments can improve run-down areas and attract new facilities as well as benefiting the local economy.
Build-to-rent developments aren’t necessarily cheap – all those facilities and services generally come at a price. They also tend to be aimed at particular groups – such as young professionals or over 55s. But choice is the main issue. While a growing area, there are still not that many build-to-rent homes available, especially outside London.
Government requirements mean that most housing developments need to be 20% affordable. This means available for at least 20% below market rent – so, in an expensive area, the units may not be within the reach of people on low incomes.
As they are a relatively new concept in the UK, the long-term future of build-to-rents is a grey area. Planning regulations have been put in place to prevent the affordable housing units in developments being sold off to the private sector, but the rules about the rest are unclear. If build-to-rent properties continue to bring in revenues for their investors, a mass sell-off seems unlikely, but that could depend on the future shape of the UK’s rental market.
If you’re looking to invest in property in the Brighton area, give us a call. We can talk about the options, whether build-to-rent or traditional buy-to-let.
Do you have any questions about the topic above? Our team of experts is here to help in answering any query you may have.
Fueled by his desire to be the best, most reputable estate and lettings agent in town, Steve has spent his career cultivating The Property Shop. Steve prides himself on his authenticity, honesty, and knowledge-base which is emulated by The Property Shop and his team.
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