Long-term renting trend ‘is big opportunity for lettings agents’

The very British and generations-old obsession with homeownership may be waning for the first time in recent memory, driven partly by the boom of the build-to-rent (BTR) sector and this is creating a huge opportunity for savvy letting agents.

The introduction of the Housing Act in 1988, which gave a landlord the right to recover possession of their property, was a precursor to a boom in ‘buy to let’ purchases as it provided a legal mechanism for bringing tenancies to an end, giving the institutions the confidence to lend and leading to the creation of an entire ‘buy to let’ infrastructure.

QUICK BUCK

The public quickly turned their attention to residential property as a means of creating a long-term supplement to their retirement or, in some cases, a shot at a ‘quick buck’.

This trend boomed through the ’90’s and into 2007 before the global financial crisis called a stop to the seemingly endless price growth which had driven the market. It is estimated that between 2000 and 2015, around 1.7m buy-to-let loans were advanced.

In 2012, Lord Montague was commissioned to write a report exploring the factors which were preventing institutional investors from entering the UK’s Private Rented Sector.

THE REST IS HISTORY

The report set out a series of clear recommendations, the most impactful of which may well have been the proposal to establish a ‘PRS’ task force which set out, with full Government support, to break down barriers and drive the shift to a more regulated and higher quality rental sector. The rest, as they say, is history – the structural shift towards renting was underway.

The rate at which institutional investment has gravitated towards the BTR sector is well documented and quite dramatic. From a standing start in 2015, the UK’s BTR stock stood at 78,700 completed homes by the end of 2022 with a further 50,500 homes under construction. In 2022 alone, £4.3bn was invested in the sector.

Whilst rapid growth in the BTR multi-family sector has led to the availability of high quality, professionally managed, amenity rich apartments up and down the country, it is only very recently that the single-family rental (SFR) model, has started to attract equivalent levels of investment into houses for rent.

SINGLE-FAMILY RENTAL

Although it’s early days for the SFR sector, it is widely thought that the rate of investment into houses for long term rent may well eclipse the stellar performance of the BTR sector.

Housebuilders have already been significantly impacted by the end of Help to Buy, which supported 375,654 purchases in the 10 years of its existence. Interest rate rises and a period of high inflation have further exacerbated the challenge the industry is facing.

The solution to the likely shortfall between supply and demand looks almost certain to be filled by institutions eager to enter the rental space, and this in turn creates an opportunity for lettings agents to capitalise on this latest evolution in the rentals market.

LETTINGS AGENTS

Although some BTR operators will handle their property management responsibilities in-house, there’s nothing to stop lettings agents adapting their business models and service offerings to support the lettings on their local BTR developments.

For lettings agents that can secure instructions on BTR developments, it can be a lucrative game. Dealing with a single entity or a few entities, rather than numerous individual property owners, offers a stable and consistent source of income, greater consistency and, potentially, a longer-term opportunity.

As the BTR market matures, it will also help to drive further improvements and professional standards in the PRS, as a whole.

Although the sector has come a long way in recent years, there are still rouge landlords, as well as unscrupulous agents, operating that give the industry a bad name.

NEVER BETTER

The opportunity for letting agents to play a part in the institutional rental sector has probably never been better.

There are three defining factors that have driven our obsession with home ownership. The first is that we have been conditioned to associate home ownership with social credibility; the second is that we crave the security of ownership; the third is that we chase the equity we will inherit when we’ve paid off the mortgage.

As the market shifts and more people choose to, or are driven to rent, sentiments are changing. Whilst most UK residents will have rented a property at some point, it has tended to be on the basis that is a stop gap before they ultimately choose to buy.

With the average age of a first-time buyer having risen dramatically and the increasing availability of higher quality rental options, there are simply more people renting for longer. As a consequence, it is increasingly socially acceptable to rent for the medium to long term and the stigma is fast fading.

DYNAMIC CITY CENTRES

Whilst traditional tenancies have tended to last a year – and even less sometimes in the dynamic city centres – the institutional residential approach is founded on longer stays of up to five years which are starting to challenge the historic correlation between renting and transience.

Our obsession with owning in order to create wealth is more challenging and the notion that rent is dead money is deep-rooted.

In reality, the equity embedded in a home is only accessible through equity release or downsizing, which is likely to require the investment of a chunk of equity into another property.

TAX BURDEN

Whilst past generations have obsessed with owning their home in order to create long term wealth, it is a fact that many owners actually never sell, leaving their property behind when they die and creating a tax burden to boot, so this wealth is often never realised.

Renting is undoubtedly becoming more socially acceptable and longer-term tenancies in institutionally owned properties are increasingly accessible but if future generations are to properly embrace rentals for the long term and potentially for a lifetime, we will need to move away from viewing our home as an investment.

Jonathan Morgan is a Partner at Zenko City Living