There is a big buzz around build to rent.
Reminiscent of the boom in purpose-built student accommodation a few years ago, the sector is now attracting significant interest from institutional investors who are keen on its long-term fundamentals and recurring and reliable revenue streams.
Build to rent does, after all, fill a necessary role within the UK’s housing market – particularly in major cities such as London, Birmingham, Manchester and Leeds. In these locations, there is a shortage of housing stock, getting on the first rung of the housing ladder can be particularly expensive, and there are high numbers of graduates leaving top-tier universities and looking to stay put and begin their careers in the cities they’ve grown to love. These people, many of whom will be leaving high-quality purpose-built institutional student accommodation building, are likely to find purpose-built build to rent, with its rich amenity offering, a natural next step. And in a country with a much-publicised ‘housing crisis’, introducing purpose-built accommodation that encourages house sharers out of HMOs, which can then be turned back into family homes, is a helpful by-product.
For the baby boomer generation, unlike their European counterparts, renting tended to be seen as a stopgap solution. Buying a first home has always been a stretch for most people, but house prices have increased by a significantly higher proportion than salaries, meaning that renting for a longer period has become a reality for most young professionals.
But there has also been something of a cultural shift. While a survey in the US of 1,000 renters between the ages of 18 and 34 by Rent.com found that affordability was the most popular reason for renting, a significant 20% said that they preferred renting over buying because of the inherent freedom it offers; a further 10% said they would rather not own their own home because they would prefer not to deal with maintenance issues; and an additional 8% said they chose to rent because they could live in a nicer home in a better area than if they were to buy.
It is likely that home ownership will remain something that Britons ultimately aspire to. However, various social trends away from material possessions and ownership, and towards experiences and convenience point towards the increasing popularity of renting for people in their 20s and 30s. For example, Spotify and Apple Music mean customers effectively pay a subscription to listen to songs that they will never actually own, and is based on the idea that the experience and convenience of being able to listen to almost any song in the world is worth more than ownership of a few select tracks. Experience gifts – rather than objects – have also become increasingly popular for Christmas and birthday presents.
So the initial attraction of build to rent, both to tenants and institutional investors, and the social trends behind it are clear. The more difficult and time-intensive element of this sector though is management: encouraging tenants to stay put after their initial contracts and reducing gross to net leakage. In the past, the private rented sector’s reputation for dodgy agents and landlords made renting something no-one wanted to do for longer than they had to. Now that renting has become a longer-term option and tenants have become more sophisticated, they are – quite rightly – demanding a proper, professional service from their landlords. Those who do not get it are likely to vote with their feet.
Reacting promptly to tenant issues is one thing, but creating a great experience for tenants is what will really make them stay. Statistics show that those who know one person in their building are 70% more likely to renew their contract, while those who know two people are 95% more likely to stay put.
So creative and efficient management in the build to rent sector really can pay dividends.
Notes to editor
Lesley is one of the most well-known build to rent specialists in the residential investment market and has been heavily involved in the evolution of build to rent in the UK over the last few years.
She has contributed to thought leadership through both the British Property Federation and Urban Land Institute (ULI), having toured the US studying their multi-family model. Most recently Lesley was heavily involved with the second edition of the ULI’s ‘Build to Rent Guide’.
With 10+ years of UK PRS experience, her extensive expertise incorporates all facets of large scale residential portfolio performance including product suitability, design, lettings, management, operations and strategic asset management.
T: +44 (0)20 7344 2653