The Booming Build to Rent Market

18 February 2019

With an average of 25% of all UK households now renting in the private sector; developers, pension funds and large-scale investors are now developing homes specifically for renting, in what is known as “Build to Rent”. In 2017, the Build to Rent market attracted £2.4 billion of investment and this is forecasted to grow by 180% in the next 6 years.

 

Over the last 15 years, the UK’s Buy to Let market has boomed, with more than 5 million people now renting in the private sector. The UK now has more than 2.5 million private landlords, but surprisingly over 60% of these landlords own just a single property with a third of all private landlords being retired.

 

The effects have not been felt more than in the younger generation, with the proportion of those aged 25 to 34 living in the private rented sector increased by 46% in 2015-16, termed the “millennial generation”.

 

Large pension funds, insurance companies, private equity firms and large-scale investors are now ploughing millions of pounds into building purpose built developments, in what is termed the “Build to Rent” sector, to cater for the millennial renters who generally demand high quality properties, with easy access to amenities and lifestyle facilities such as gym, cafés and bars;. These companies generally have the capital to develop large blocks of flats, which are in turn are let out and managed by a single company, rather than being sold to individual private landlords.

 

A recent study found that 139,508 Build to Rent homes are either complete, under construction or in planning across the UK, an increase of 22%. One such company, US investment firm - Viventi Capital Management has plans to inject £100m into the UK’s Build to Rent sector developing sites across the UK ranging from 250 to 400 units

 

For tenants, there is the benefit of a more streamline experience with bespoke high quality management with less risk of eviction just because the landlord wants the property back.

 

Because build to rent has the potential to increase the quality of rental accommodation and thereby increasing the supply of homes for renters, but the benefits come at a premium. One study (By Richard Valentine-Selsey) found that London’s new private rental communities were on average 11% more expensive than rental properties nearby. For example in the Get Living development at Elephant and Castle renting a one bedroom apartment will cost tenants £1,800 on average a month. This requires the prospective tenant to be earning £60,000 a year to pass the credit check for affordability. However there is no regulation or law to provide this affordability check to prospective tenants. According to the studies and reports, it seems that the build-to-rent sector is driving a rent up which does not help the social housing crisis that the UK is facing.

 

 

There is potential to do much more with the right policy environment to balance the social housing aspect. According to Leech she thinks by 2030 [build-to-rent] could deliver 240,000 units. That is clearly not going to solve the housing crisis on its own, but it’s a significant contribution,” Leech says. Melanie Leech is the chief executive of the British Property Federation in the UK.

 

On the positive side this provides opportunities for private companies or even overseas investors to purchase smaller developments of 50 (or less than 100 units) units in a single block, using the same business model adopted by the large insurance and pension companies. With the prospect of higher rental yields and the opportunity for capital growth this presents a favourable investment opportunity for overseas investors. Enviro Estates has the experience to manage multiple units to a high professional standard.

 

At Enviro Estates we offer such scheme to oversea’s investors to invest in this sector, with our contacts with property developers who are keening to provide discounts for bulk purchases. Or we can assist in the construction of multiple units from ground level.

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