A response to Build to Rent

The private landlords response to Build to Rent.

Many private landlords are nervous about the recent and ongoing growth in Build to Rent schemes, believing that they may offer tenants a quality of accommodation and breadth of service not currently found in the private sector. Fears that the single lets of private landlords will lay vacant are so far largely unfounded but this month I thought I would explore the growth of the build to rent sector and what landlords may be doing to keep apace of this ever changing market.

Recent figures suggest that there are over 40,000 completed Build to Rent units with a further 118,000 either in the planning stage or under construction. The figures are increasing at around 15% per year. The growth of the Build to Rent sector is rather unsurprising. Legislative changes such as Clause 24 and stamp duty second property surcharges have forced many private landlords out of the market, which, in conjunction with significant house price growth, has culminated in a huge volume of people looking for rented accommodation. This exit of private landlords could continue further once the long awaited Renters Reform Bill reaches the statute books.

Residential property investment, once largely ignored by the institutions is now seemingly the hot ticket with many new entrants such as Lloyds, who wish to acquire 50,000 units by 2030. Government policy over recent years suggests that there is some political will for the Institutions to get heavily involved in the private rented sector.

A Build to Rent scheme is typified as one with a minimum of 50 units and where generally longer tenancy periods (such as three years) are offered. They tend to have on site management and consequently rents are typically around 10% higher than more traditional letting in the locality. Such rent levels are normally justified by the provision of some onsite leisure or concierge facilities.

They also typically cater for a set sector of the rental market be that Students, Retirees or young professionals. Many are attracted to them due to the fact that they are typically new and because of the range of leisure or other facilities which they could not take advantage of if they rented in the private sector.

So does the entrance of Build to Rent signify an end to the role of the private landlord?

I certainly don’t think so. By definition these rental groups will be attracted for a period of time only. The scheme will be unlikely to suit somebodys whole of life housing needs and therefore there is plenty of room for the private landlord to flourish. Indeed I have yet to see a scheme which would be considered the ideal solution for families. Presumably, for commercial reasons, the schemes I have seen comprise small units suited for individuals or couples.

Private landlords, unanswerable to shareholders and boards of directors can maintain flexibility in terms of the rents they charge and the service they provide as well as being far better positioned to promote a positive relationship between landlord and tenant. Local property management is likely to be far more effective than a regional solution such as that provided by a national player.

That said, it cannot be a bad thing having new schemes challenge the status quo. It will serve to increase standards and improve competition, both of which should be welcomed.

Some landlords I know have actually been inspired by the Build to Rent movement and have sought to create a brand identity for their own portfolio by implementing augmented service levels for tenants, some consistency in the branding and marketing of their properties (particularly in the HMO market), enhanced energy efficiency credentials and the encouragement of longer tenancy periods. Some have also repurposed outside areas to provide cycle racks, secure parcel drop off points, outdoor Gym facilities and the like. All such actions should underpin the rent you can achieve as well as promoting the longevity of the tenancy.

Indeed you may be able to successfully source new tenants from the Build to rent sector as the Students of today are the young professionals of tomorrow. The Build to Rent Student block could therefore be the perfect place to ultimately secure the young professionals that perhaps your portfolio is designed to house.

The real risk is where the Build to Rent scheme in your locality mirrors the tenant profile that you exclusively look for. Those with Student let portfolios for example may wish to repurpose some of them for family use.

There is doubtless a need for private landlords in the rental sector. Those who fail will do so, not because of the growth of Build to Rent but due to their inability to adapt to market changes and provide the type of accommodation that the market currently demands.