Up until now, the UK’s rental sector has been dominated by landlords with a couple of properties in their portfolios. This, however, is all about to change.
According to mortgage lender Paragon, some 2m buy-to-let landlords own almost 20% of all residential properties.
With a rapid increase in house prices, Generation Rent has continuously been priced out of the market. This led to big financial institutions asking an important questions: Why is this generation not living in a large-scale, corporate rented sector similar to those in Germany and the US?
Instead, renters in the UK, as soon as they are deemed not eligible for social housing, find themselves in midst of a rather unfortunate situation. Some of them might hit the jackpot and find their dream home, secure a long-term rental agreement and live in a great place. Others, however, won’t get as lucky and will battle rats, the cold and controlling landlords who can’t let go of what once was their family home.
Another problem that comes with the sector is the security of tenure: the majority of renters are forced to agree to assured shorthold tenancies, allowing landlords to evict tenants with a two months’ notice and increasing rents after 6 or 12 months.
In recent years, global capital has specified this flawed system as a financial safe haven. Large-scale rented housing has already seen an investment of £15bn – with much of it still yet to be built – and an additional £20bn are expected to be poured into the sector by 2020, Knight Frank found out.
Investors are hopeful they’ve spotted demographic trends early. In the last 12 months, homeownership hit its lowest level in 29 years due to the ever rising house prices. Property agent Savills predicts an additional 1.1m rental homes by 2021.
To top this off, people have been moving back into urban centres again since the early 1990s. This reverses the previous trend of suburbanisation which took place before then, think-tank Centre for Cities found out.
A question of involvement
A major question within the build-to-rent sector remains the extent to which renters will enjoy a ready-made social life as an add-on to their new home.
Developmers across the country follow different guidelines and each have their own approach when it comes to the involvement in the renter’s private life and living space.
Neil Young, chief executive of Get Living London, says they had to learn to listen to tenants about the types of activities they would like. “At the beginning we were a bit too Butlin’s,” he said, highlighting a fine line between communal activities and “forced fun”.
Furthermore, Get Living also introduced a policy of allowing only independent bars, retailers and restaurant (apart from one Sainsbury’s) to sign a lease for commercial spaces in the hub. This strategy aims to create a sense of uniqueness, an actual neighbourhood flair.
Britain’s affordability crisis, especially in cities like London, has also caused worry among employers. The recruitment success for some companies can come and go with the future employees abilities to find somewhere to live, especially for more junior roles.
Professional services firm Deloitte already pre-booked rented homes in one of London’s major new villages last year for 40 of its graduates.
One question remains, though. How can developers create more build-to-rent destinations?
One of the biggest challenges has been land values: developers say they struggle to compete in land auctions with housebuilders as they have deeper pockets because they get paid for the houses they build upfront.
On top of that, some might think the UK’s decision to leave the EU has put another dampener on the market. Experts, although, say the Brexit decision will help to bring land values back down again to some extent, which in return will help build-to-rent developers.
A lifestyle choice
Experts have noticed an overall trend for those dubbed Generation Rent when it comes to the value of experience over possession. Millennial seem to be more than comfortable with temporary access and ownership whether that’s for cars via Uber, movies through Netflix or accommodation as a renter.
Renting has become a lifestyle choice rather than a last resort.
Dan Wilson Craw, policy manager at the campaign group Generation Rent, is sceptical. “The majority still want the security that right now they can only get through home ownership,” he said.
But he adds: “We need a professional private rented sector, and that’s something that institutional investors are better placed to provide than traditional buy-to-let landlords. If pension funds and insurers are keen to put money into housing, we should welcome that.”
He said that build-to-rent could potentially “set standards for the wider sector. We’d like to see them providing better security of tenure and more certainty over rents.”