The bright future of Build to Rent

The bright future of Build to Rent

This editorial was featured on Property Wire.

Paul Stockwell, Chief Commercial Officer

In 2016, an article by Savills asked the question of whether the golden age of Buy-to-Let was over[1]. An increasing tax burden and restrictions on relief mechanisms raised concerns of a landlord exodus. Six years on, whilst we have not seen any exodus yet, we have seen a growing interest in other areas of the private rented sector (PRS).

One such area is Build to Rent (BTR), a fast-growing sub-sector of the PRS that is specifically designed to build homes for rent rather than for purchase. The idea is that it provides high quality, purpose-built homes at scale, and recent figures show just how quickly this market is growing. According to Knight Frank, institutional investment in the UK BTR sector totalled £1.7 billion in the first half of 2022 alone[2]. Deals worth a further £3.1 billion are also expected to take place by the end of this year. So, what exactly is driving this growing interest, especially despite the wider economic headwinds?

Government direction

In part, growing investment in BTR has been supported by Downing Street, as the government tries to find solutions for Britain’s housing shortage. The hope is that the injection of institutional players and their capital into the rental sector will professionalise the market, with more cash for new, sustainable properties that are well-managed.

Significantly, the Department for Levelling Up, Housing and Communities also recently published an enquiry into the PRS, with a twelve-point action plan that outlined some significant changes[3]. The broad intention of the government’s report is to ‘create a fairer private rented sector’, with greater protection for tenants, including the abolition of ‘no fault’ evictions, limitations on grounds for repossession, and new quality standards. Some smaller and so-called ‘accidental’ landlords are viewing these changes as part of a wider trend towards pushing them out of the market altogether, to be replaced by larger portfolio players who have the capacity to absorb the legal changes.

Driving up standards

These legislative changes appear to be another obstacle for landlords to overcome, which can be frustrating, especially when those in the sector have already felt the impact of tax changes in recent years. It is crucial that we encourage landlords to maintain their presence as they continue to play a vital role in Britain’s housing mix and the level of rental stock on the market is already low. However, it is also worth noting that the purpose is not to drive smaller players out, but to drive standards up across the industry, seeking to provide tenants with higher quality properties that are designed with their needs in mind.

Some BTR schemes, such as those portfolios advised and managed by Gatehouse Bank, are also specifically designed to be socially responsible and energy efficient. Considered together, the PRS enquiry and growth of BTR are ushering a new era of higher quality rental housing. This focus on higher standards, social responsibility, and ESG is also a factor drawing significant interest in BTR from tenants and institutional investors.

High profile investment

There is no doubt that attracting large players, including Legal & General, Aviva, and various private equity investors, has also helped to boost investment in BTR as of late. By attracting these household names, the sector is likely to see growing interest as other investors try to secure their share of the pie, driving more competition and higher standards in the sector.

I expect to see the Build to Rent market go from strength to strength the first six months of 2023 and have already seen investment at levels 25% higher than the long-term average. With growing interest amongst capital providers and the backing of the government as well, the sector has a bright future ahead. This isn’t just positive news for investors, but also for renters and housebuilders.