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What does Build to Rent mean for letting agents?

Build to Rent encourages developers to become landlords. How, says David Hadden, Head of EndsleighLet, will that affect letting agents?

David Hadden

David Hadden imageWhat’s keeping the Private Rented Sector (PRS) awake at night? Big developers morphing into large scale landlords, apparently. Build to Rent is the biggest concern, according to 72 per cent of the PRS professionals we spoke to at the recent ARLA Propertymark conference in March.

Building development imageScores of attendees took part in our poll of pressing concerns for the PRS industry, and concern over the implications of Build to Rent – a government scheme designed to encourage developers to retain property and manage tenants – was on the minds of the vast majority.

When we asked what worried them most about the initiative, 28 per cent said they’re concerned that it will lead to rental price increases, 18 per cent said increased agency competition could be an issue for them.

Are they right to be concerned? It’s hard to tell how popular the scheme will prove to be with developers – and whether it will continue to be a focus for the government.

It is likely that traditional rentals will beat Build to Rent homes on price.

Given that a general election has been called for early June this year, most of the PRS industry will now be more concerned with trying to read between the lines of campaign manifestos and interviews. The fee ban could potentially become an even larger feature of the political landscape over the coming weeks.

In an uncertain policy period like this, the best approach is to know the terms of the debate, keep one eye on the public statements of the politicians who’re likely to be control after the election – and take everything else with a grain of salt until the electoral war of words dies down.

PROS AND CONS

Let’s look at how things stand at the moment, some of the reasons that the government might be in favour of continuing the scheme and how that might impact the PRS.

Build to Rent, launched in 2012, is a government scheme designed to encourage the development of more rented housing properties across the UK, providing a funding incentive for developers to hang onto their property and arrange long-term leases – a point of concern for many PRS professionals.

According to the British Property Federation, there are 69,000 build-to-rent units across the country, around 13,000 of which are already completed.

The government has backed the scheme because they believe that it gives developers an incentive to retain property, making it easier to guarantee common standards and accountability. This will be an important point to monitor, as lax standards of customer service by landlords unfamiliar with long-term customer service might turn out to be an Achilles heel.

Build to Rent appeals to some institutional investors because it provides a more regular return, which can be important in an industry that faces the peaks and troughs that come with major projects. But it’s also true that the returns are much lower than property investors receive from large-scale developments designed to sell, which could prove to be a sticking point.

Potential tenants find the model appealing because it means the property is designed specifically to rent, and often comes with longer tenancies and perks like on-site maintenance teams. But this package style approach will likely also mean a much higher cost, exacerbating an already critical issue for many renters, especially in the capital – another potential issue for the scheme.

Though many in the PRS industry are concerned about Build to Rent, it’s important to keep these issues in mind, while stressing the strengths that traditional rentals have over the newer approach.

Unique and varied housing is often more appealing than a homogenous development might be to renters who are thinking about a place to call home. This could prove to be a strong point of difference for letting agents and landlords, who are more likely have properties with unique features.

In addition to the housing stock, good letting agents and landlords have an opportunity to surpass the uniform customer service of developers, who’re less experienced in dealing directly with tenants and likely to be less flexible given that their approach requires a more standardised system.

It’s also likely that traditional rentals will be in a position to beat Build to Rent properties on price – an important point in expensive markets like London – because developers will have pressure from institutional investors for significant profits.

The PRS needs to work together to encourage continued success in the areas that already make it stand out from Build to Rent type housing – consistently lower rental costs, efficient and personal landlords or letting agents, unique housing stock and flexibility for renters’ changing situations.

The Endsleigh letting agents poll was completed by 132 letting agents in March at the ARLA Propertymark Conference.

July 19, 2017

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