The build to rent sector – can it solve the housing crisis?

As the Government continues their efforts to tackle the housing crisis, we look at the potential of Build to Rent models and how they can help ease the housing crisis.

Build to Rent (BTR) homes are built at scale for the primary purpose of being rented long-term. The sector is expanding rapidly, with 80,855 BTR homes either completed or planned according to the latest figures. The industry estimates investment in the sector could grow to £70 billion by 2022, providing a further 15,000 homes each year – with the potential to reach at least 240,000 homes built specifically for let by 2030. Whilst a new development in the UK property market, this is a model that has already been pursued at length in other countries, including Germany, France, the US and Australia.

As initially set out in the Government’s Housing White Paper in February of this year, and then subsequently consulted on, the Government is interested in implementing measures designed to support more BTR developments and “attract major institutional investment in new large-scale housing which is purpose-built for market rent”. These proposals include: changing planning rules so councils proactively plan for more BTR homes where there is need, making it easier for BTR developers to offer affordable private rent in place of other types of affordable home, and introducing longer tenancies which are more family friendly to provide better security for renters. Following the Government’s recent consultation on these proposals, it is widely expected that they will be introduced as part of an update to the National Planning Policy Framework later this year.

This backing was echoed by Mayor Sadiq Khan’s recent draft Housing Strategy document, which highlights the opportunity London has to “harness the emerging” BTR sector. The Mayor will provide support through new planning guidance and in the new London Plan, lobby government to exempt BTR from the three per cent Stamp Duty Land Tax surcharge, and support purpose-built rented homes at a range of rent levels. This comes after the Mayor’s recent planning guidance set out a clear pathway for applicants and councils to work together to get BTR planning proposals approved efficiently.

These measures from central government and the Mayor appear to be having the desired effect in terms of attracting developers into the market. In August, £65 million of government funding was announced in support of the UK’s largest BTR development at Wembley Park; with 6,800 of the 7,600 homes earmarked to be available for rent. This £65 million government loan will be match funded by developer Quintain to provide a £130 million infrastructure investment into Wembley Park, whilst supporting the rapid delivery of new homes which are expected to be completed in 2026. Grosvenor also plan to build 1,500 rental homes in Bermondsey, with their Executive Director of major projects Simon Harding-Roots being particularly vocal in calling on the private sector to contribute more BTR homes. Other major BTR projects have also been approved in cities including Manchester and Sheffield, highlighting the wide appeal of the model.

Aside from increased government backing being a factor, Angus Dodd, the chief executive of Quintain, said the company is interested in focusing on building homes for rent because it provided a reliable long-term income stream, in contrast to the lack of stability of the wider housing market. Demand for private rented housing has increased dramatically and is predicted to continue to rise, with PwC estimating that 25% of households will live in the PRS by 2025, a rise of 6% since 2014/2015.

The Housing Minister Alok Sharma has been quick to emphasise the role of the sector in “boosting the choice and quality of homes on the market – meeting the needs of renters in cities and towns across England”. Whilst volatile political and economic times pose a threat to the sector’s progress, there is growing evidence that with government and market backing, as well as growing demand, the BTR model is here to stay as a key part of the strategy to finally overcome the UK’s alarming housing crisis. As identified by Clifford Chance, following in the footsteps of countries across Europe, the UK appears to finally be “on the brink of a large-scale, commercially developed, owned and operated BTR sector”.

For more information on support for engagement with the national government and local authorities regarding BTR developments, please contact Will@gkstrategy.com

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