Build to rent (build to rent) in the UK originates from a government initiative to provide for developers a “Build to Rent Fund” to kickstart the provision of more rental homes in the country. Recognising that the demand for rented homes was increasing rapidly in many parts of the country, the Government wanted to build a bigger, better and more professionally managed private rented sector.
The “fully recoverable” investment fund was designed to stimulate additional housing supply to meet local needs, promote new building for market rent and encourage institutional investment into the private rented sector.
The idea was that the Government would act as guarantor. That is, to share risk or provide finance, enabling schemes to be delivered, the objective being to invest in viable projects with economies of scale. This was intended to create a step-change in the supply of homes for private rent and the Government would eventually realise a return when the refinancing or sale of a developer’s interest to an institutional investor completed.
With build to rent, developers usually build large-scale developments of purpose-built blocks of flats or less commonly to-date, estates of single-family homes for rent, rather than for sale. When tenanted, these properties often enjoy communal spaces, on-site amenities and they are professionally managed by the owners or a management company.
With buy to let, private owners, being both small-scale and portfolio landlords, invest in, own and manage a smaller number of properties, from just one home to substantial portfolios of rental properties.
According to British Property Federation (BPF) figures as at Q3, 2023 there were 253,402 build to rent homes in the UK, including both London and the regions, of which 88,100 were complete, 53,487 under construction and 111,815 in planning. In London, there were at this time a total of 97,294 units, while outside London there were 156,108 units.
By contrast, and as an indication of the disparity in size, the buy to let private rental sector is characterised by diversity and looks very different now than it did more than a decade ago. According to the latest available Department for Levelling Up, Housing and Communities (DLUHC) English Private Landlord Survey, the number of households in the private rental sector rose by 45% between 2008-09 and 2020-21, from 3.1 million to 4.4 million households.
The private rental sector is now the second largest tenure in England, and is home to 19% of all households, compared to 14% in 2008-09, when it was smaller than the social rented sector. The sector contains a wide range of different sub-markets, serving a wide range of different types of households across all incomes, including an increasing number of families.
Although the build to rent sector is tiny compared to buy to let, it is growing apace as more developers enter this type of development, building to rent rather than to sell. For example, Harworth Group plc, a leading regenerator of land and property for sustainable development and investment, has recently announced a single family build to rent scheme. It will result in a portfolio of around 1,200 homes across 10 of its re-developed opencast mining sites in the midlands and the north.
The rise in build to rent can be seen as a response to the increased number of people renting long-term in the UK, and the Government’s policy of encouraging the growth of a professionally managed private rental sector, similar to those operating in the USA and in Europe. As we’ve said above, more people are renting than ever before. And 30% of renters are never expected to make it onto the property ladder. This has created an opportunity for institutional investors, for example pension funds, to capitalise on the potential for long-term revenue.
It has also led to a shift in renters’ tastes and expectations. Build to rent offers (or claims to offer) high levels of service, quality furnishings, long-term leases and shared on-site facilities such as gyms and even restaurants – all of which are appealing to in particular young renters who may be renting for years to come, if not for their entire lives.
According to Savills, over 8,300 homes were funded since the start of 2023, but this will hardly move the dial on the UK’s supply-demand imbalance. With fewer homes to rent and record private sector wage growth, rents grew by over 10% to September 2023.
Meanwhile, higher interest rates and other factors have reduced the profits of buy to let landlords. Other factors have also produced a tougher operating environment for traditional buy to let landlords, so even though there is an overwhelming demand for growth, they are unlikely to supply the necessary growth to meet this demand. Although build to rent still makes up less than one per cent of privately rented homes in the country, Savills expects this to grow as new build to rent entrants emerge.
Developers and institutional investors already in the build to rent market are learning to operate schemes efficiently and claim to offer their residents superior levels of service. “These lessons will be invaluable as operators seek to differentiate themselves in the market and generate superior levels of returns,” says Savills, though it has to be said that these schemes are designed to attract premium tenants at premium prices.
This depends on a range of factors, including where your properties are located, your tenant profile and what rent you charge. However, all landlords should be up-to-speed with the latest private rented sector trends, if they want to make the most of their investment and remain competitive. In this piece we’ll explore build to rent in more detail and look at how landlords should respond to this major new player in the private rented sector market.
Co-living is a key part of the build to rent model. In fact, the two concepts are often used interchangeably. London’s Old Oak development is a good example. It is said to be the largest co-living development in the world. Alongside rented flats, Old Oak boasts a roof terrace, a spa, a gym, a cinema, a secret garden and an on-site bar. The shared facilities are there, in part, to create a sense of community. The residents of Old Oak don’t just live near one another; they live together. Co-living is part of build to rent’s appeal to younger renters, for city living and those who want somewhere to socialise as well as sleep.
As can be seen from the branding on Old Oak’s website, many build to rent properties tend to be targeted at millennial and Gen Z renters. And a key difference between build to rent and buy to let is that build to rent offers residents a premium aspirational lifestyle that buy to let private landlords would struggle to match. After all, how many HMOs come with on-site spas, gyms and cinemas?
There’s also a trend for build to rent to enter the single family space, with professionally managed estates of single family homes, developing large communities of families in newly built estates with schools and other amenities close by, as in the Harworth example given above.
On the other hand, traditional buy to let landlords can offer clean, safe and competitively priced traditional housing, usually at a lower cost than build to rent. They are able to offer co-living on a smaller scale in the form of conveniently located HMOs and student housing. See our ultimate guide to letting an HMO and our ultimate landlord guide to student properties for more information.
The initial trend was confined to London and the south east, but build to rent properties are now springing up in major cities across the country, particularly Manchester, Liverpool, Bristol and Birmingham, as well as the single-family developments outside of these cities. In fact, the available data shows that the other regions have now overtaken the capital for properties under construction.
However, they tend to be found in the most central locations near amenities like restaurants, bars and other social settings, large employers and universities, all of which contribute to build to rent’s trendy, millennial image and positioning, something traditional buy to let landlords need to bear in mind when making new investments.
They may target younger renters but most build to rents s certainly aren’t cheap. In fact, they can be quite pricey. A study by JLL (a real estate services company) found that build to rent properties were, on average, around 11% more expensive than other rental properties nearby, while another study found they were 10% more expensive than similar properties.
Not necessarily. As discussed above, they cater for a variety of tenants. 35-49 year olds now make up the majority of the UK rental market, and build to rent developers are tailoring their services to meet the needs of young families as well as young professionals and older singles and couples.
For instance, Get Living’s East Village development has three and four bedroom townhouses with long leases designed with families in mind, as well as the “outstanding” Chobham Academy school and plenty of leafy parks within walking distance. There are also after-school clubs and meetup groups for new parents.
CEO of the HFIS group, Eddie Hooker, believes that build to rent developers will broaden their offering as the market matures.
“I expect development schemes will start to evolve to include lower income tenants. The student market, for example, has shown that ‘lifestyle’ blocks are becoming more attractive even for the lower income students. Larger blocks or schemes can include a range of units that will be attractive to differing income tenants but retaining the benefits of shared services and lifestyle options. The market is evolving.”
Eddie Hooker, CEO of the HFIS group
If there’s one thing build to rent does really well, it’s branding. Most premium co-living spaces have glossy websites and brochures full of professional photography that do a great job of selling the ‘co-living lifestyle’. However, there’s more to being a successful landlord than getting people through the door.
In fact, the East Village development mentioned above recently attracted the attention of The Financial Times (FT) for its poor service. Following a story about the boom in build to rent construction projects, an East Village resident wrote in to tell his side of the story, complaining of unexplained rent increases, maintenance issues and general poor practice.
So called “professional” management isn’t always what it’s cracked up to be. Residents of other co-living spaces have complained of operators using Airbnb to fill empty premises during void periods. The paper even conducted a short survey, finding that nine out of twelve build to rent residents had problems with their tenancies, from damp to vermin infestation.
“I won’t ever rent from a large company again. Individual private landlords have been infinitely better and more accommodating,” said one respondent.
Whether or not you will be affected by the build to rent boom - and undoubtedly some locations will become more competitive - will largely be determined by your location. If your rental properties are in desirable city centre spots, the kind favoured by young professionals, then you may well be feeling the squeeze.
A wise first step for landlords who are concerned is to do thorough research in their local area. Are there any build to rent properties planned for construction or in operation? How close are they to your properties?What price will they be charging, and what kind of tenants are they targeting?
Information on pricing, facilities or complimentary offers will always help you size up the competition. Local estate agents may be able to provide you with information they’ve picked up on the grapevine. And you can always Google the developments and see if they have a dedicated website.
If there are build to rent developments in your area, it’s important to remember that there are still advantages to renting with a private landlord. And understanding these advantages is key to competing with these co-living developments.
The tenant-landlord relationship isn’t purely transactional. On some levels, it’s quite personal. After all, this is why you meet and vet tenants before they move in: to make sure they are who they say they are, and also to make sure they meet your target profile.
This more personal connection doesn’t exist in the same way with build to rent. Some build to rent operators offer a dedicated point of contact. But that point of contact is, ultimately, an employee of a much larger organisation.
A lot of renters will feel more comfortable renting from a real person, and may also feel that a landlord with a handful of tenants will provide a better level of service than a company with 9am to 5pm employees and hundreds of tenants to deal with. Their primary goal is maximising shareholder returns, yours is to offer excellent service for a reasonable return.
As always, landlords who can provide value, along with a high level of service and a strong relationship, will likely be more appealing to tenants in the long run than landlords who are more hands-off.
Anyone who has stayed in an Airbnb knows that often small gestures can make a big difference. And it is these small gestures that landlords are well-placed to make. A bottle of wine and a card on move-in day, along with a tenant welcome pack, will always go down well, as will a jar of good quality coffee in the cupboard and a short guide to the local area, featuring must-know brunch or dinner spots. Buy to let landlords can’t compete with the spending and marketing power of build to rent developers or their high-end facilities. But they can craft a more thoughtful, personalised and authentic experience for their tenants at a reasonable price.
This can extend to how your property is marketed. Buy to let landlords looking to differentiate themselves from build to rent should make a virtue of the fact that there is a real person on the end of the phone if need be. And they could even play up any quirks or idiosyncrasies the property may offer. Not everyone wants to live in a steel and glass ten-storey tower-block.
In fact, many renters will value ‘character’ features such as original fireplaces and floorboards. And students in particular like to live in small groups. Millennials smay often be the target market for build to rent developments, but if there’s one thing millennials s crave, it’s authenticity.
Over the past few years, the Government has supported build to rent and seems to have swung away from buy to let. It’s likely that this trend will continue as it pins its hopes on build to rent providing the growth that’s clearly needed.
85 to 90%of the private rental sector is made up of single-property landlords, which makes the market hard to control. The Government struggles to control a fragmented buy to let sector, especially the minority of rogue landlord operators.
Corporate landlords, by contrast, are more visible and more susceptible to control through planning and corporate tax policies. They’re also much better placed to help the Government catch up with their construction targets and satisfy
rental demand due to their sheer scale, with which private rented sector landlords simply cannot compete.
In fact, if private rental sector buy to let landlords are going to look anywhere for new ideas, they may want to consider the build to rent market model. Build to rent is growing fast and it’s popular for a number of key reasons – new quality homes (for the most part), flexible benefits and stable rents. Renters are looking for more than just a roof over their heads and build to rents provides the added value that many are looking for.
It may well be the case that build to rents are laying the groundwork for how the rental market will behave in the future and in particular what tenants of the future will expect from their rental property. Certainly, that’s been the case in other countries. Private rental sector buy to let landlords who want to prepare for that future could well benefit from taking a closer look at the added benefits build to rent provides and applying lessons learned to their own rental properties.