I don’t want to frighten any horses but there is change ahead. The Private Rented Sector (PRS) will be a very different housing option in the future. Why? Well, it’s called progress and it’s coming to a town near you.
It’s also called build-to-rent, which started in 2012 as a government initiative to increase the supply of high quality homes for market rent in the private sector.
It is described by RICS as a ‘fully recoverable commercial investment which is available as a loan to cover up to 50 per cent of eligible development costs,’ where developers repay the loan by refinancing or selling on to an investor.
That sounded very attractive four years ago, but there has been little evidence of such schemes launching. Until now.
Now, there are build-to-rent schemes launching in London, Manchester, Bristol, Leeds, Birmingham, Liverpool and smaller conurbations. Developers in Scotland are also showing serious interest.
The Government’s support is clear. Housing and Planning Minister, Brandon Lewis said, “The PRS performs a vital role in the housing market and we are committed to its continuous improvement.
“We’re determined to create a bigger, better PRS and are attracting billions of pounds of investment to build homes specifically for private rent, which will increase choice for tenants.
“Increasing supply is the key to raising quality and choice, and improving affordability.”
It sounds good, there’s no denying that we need more homes for rent and that tenants don’t want to be forced (through lack of supply) to rent dingy, badly maintained, old houses and flats.
Alex Rose, Managing Director, Data Analytics at Hometrack said, “Research by the Investment Property Forum showed that build-to-rent could accelerate housing delivery as it means the viability and risk profile of a development is less reliant on private sales to generate cash.
“The practice will be an increasingly important feature of the new-build market, linked to regeneration and investment in infrastructure across major cities and it will complement the planned delivery from house builders.”
WHY HAS IT TAKEN SO LONG?
Roger Southam Chief Executive, of Chainbow, a residential asset manager, says, “It’s been a slow gestation, over the last five years, with Grainger then Essential Living and Fizzy Living, pioneering the scheme, it was, on the surface, very quiet. At the end of last year though, we saw an exponential change with funding, planning permissions and agreements with pension funds etc., coming through.”
Grainger, with a portfolio of residential property assets worth over £2.7bn; says, “We are facing a unique opportunity to create a professionalised, institutionally-backed PRS, with large scale, long-term landlords, providing tenants with safe, secure homes for rent at good value. Grainger is best placed to take advantage of this opportunity by utilising its core skills and delivering good quality, long-term rental homes through build-to-rent.”
Essential Living’s stated mission is to ‘transform the rental market in London and the South East.’ Ahead of the launch of its project in Archway, North London, opening this summer, the company has boosted its property management, lettings and digital marketing teams with new hires. The revamp of the 1960s Archway Tower office block, Vantage Point will provide 118 premium flats designed for rent brought to the market. Residents will enjoy a range of amenity spaces including rooftop terraces, 24/7 service and concierge. It all sounds very exciting.
Fizzy Living’s profile is growing too, with ‘Fizzy Flats’ in east London, south London and Epsom, Surrey. The rents on these ‘sparkly new flats in well connected locations’ look expensive, from £1200 pcm for a one bedder, but the offering is smart and economic to run and you can see from
the styling and their marketing exactly who the target market is – young professionals who have no desire to buy a crumbling Victorian flat and ‘do it up.’
So there are waves rolling into the PRS. Build-to-rent is not going to instantly, or even rapidly, turn the PRS on its head, but it will develop and tenants will see their options changing – for the better – over the next ten years.
Build-to-rent offers a huge opportunity for our market, creating a sea-change in what landlords expect from managing agents. Richard Daver Rendall, & Rittner.
Rendall & Rittner is an experienced residential managing agent with 40,000 units. They work with build-to-rent operators to offer this new style of living. Managing Director, Richard Daver, says, “This expanding market offers a huge opportunity for our market. For professional landlords, this is creating a sea-change in what landlords expect from residential managing agents – and in how residents perceive the role of property managers. It provides the opportunity to maximise returns through value added property management.
“Forward looking developers know they must invest in great customer service, a strong brand and good amenities to be at the forefront of the PRS movement and maximise returns for the landlord.”
The English Housing Survey shows that private tenants in London now outnumber homeowners. However, it is not just a home that tenants are after – the benefits that come with apartment living are also appealing and demand for high quality rental homes is rising. By 2025 only 26 per cent of 20 to 39-year-olds will own their own home, down from 38 per cent in 2013, according to new estimates by PwC.
“Build to rent developments often offer a range of facilities and amenities for tenants, which is where managing agents can really play their part in adding value,” says David. Concierge, maintenances services and a 24-hour tenant helpline are standard. However, many operators are investing in lifestyle facilities such as swimming pools, spas, gyms, clubrooms and lounges. Trovit lists 3,000 apartments in London alone that are kitted out with a pool and gym.
“For quirkier services, Rendall & Rittner also manages developments offering a residents’ wine cellar, snooker room, licensed club, private dining and virtual golf, David adds.”
NEW VERSUS OLD?
This is a new world for smaller companies that operate lettings and management services, who may see the big build to-rent developments as strong competition for their landlords – and themselves. They are right. ARLA has just welcomed Get Living London as the first Institutional Investor-backed organisation to become an ARLA Licensed Member.
Get Living London, backed by Qatari Diar Real Estate Investment Company; Delancey’s flagship client fund, DV4 and the Dutch pension fund asset manager, APG, lets and manages 1,400 properties at East Village, the former London 2012 Olympic Athletes’ Village with 1,000 new rental homes under construction there.
Neil Young, Chief Executive, Get Living London, said, “It is great news that ARLA is recognising us and other institutionally-backed rental organisations as a new kind of landlord. We were the first to rent at scale in 2013 and see great value in working with ARLA to create a good-quality, professionally-managed private rented sector.”
David Cox, Managing Director, ARLA, said, “We’re thrilled that Get Living London has joined ARLA. Build-to-rent is widely seen by the industry and government to be one of the solutions in addressing the UK’s housing shortfall. Becoming ARLA Licensed agents has allowed Get Living London to join forces with the wider sector to raise standards and boost consumer confidence in renting.”
NEW INDUSTRY BODY LAUNCHES
That’s all good, but as Build to Rent grows, there are major differences between the traditional PRS operatives and the largescale developments which Richard Daver at Rendall and Rittner recognises, as does Roger Southam at Chainbow.
Roger was so interested in getting build-to-rent properly established that he went to the USA to meet the National Apartment Association (NAA) to see how they manage the massive sector.
They discussed how they could build a successful and secure sector here and in January, created an independent ‘chapter’ of NAA, benefitting from its research, data and experience, but operating in the UK as a completely separate entity – United Kingdom Apartment Association (UKAA).
“The link with the NAA is great because it means they share all the data that they have built up over the years with the UKAA – which is incredibly useful and has already demonstrated just how important their prior work has been,” said Roger.
In April, UKAA welcomed Michael Green as its Chief Executive. Michael is the former Chief Executive of the British Council of Shopping Centres (BCSC), where he spent 11 years developing it into a strong trade body with over 3,000 members.
Michael said, “My hope for the UKAA is to build a membership organisation that people are proud to be part of and that contributes to the success of this growing sector. I look forward to bringing people from across the industry together and raising the benchmark of service in the sector, resulting in a more professional and efficient marketplace and a better experience for the customers.”
The UKAA is about building a synergy to show the consumer what build-to-rent is; how it offers different choices for high quality secure homes. Roger Southam, UKAA.
Roger Southam, Founder of UKAA added, “It is a real coup for us to have Michael join the UKAA and benefit from his extensive experience and skills. “These are exciting times as we establish the first cross-trade organisation for a sector that is growing at such a rapid rate.”
Roger and Michael say that UKAA is complementary to associations such as ARLA, RICS and ARMA, it doesn’t take their place or compete in any way, “Its about building a synergy to show the consumer what build-to-rent is, how it works and offers different choices as demand for high quality secure rental homes continues to rise,” said Roger.
Michael Green believes it will represent five per cent of the rental stock within three years. Government action on stamp duty and allowances may impact the buy-to-let lettings market of 4.1million tenants, but that won’t be because of build-to-rent.
It may though, raise standards in the wider lettings market and, with tenants developing a taste for more secure tenancies in fresher, smarter purpose built homes, it could lead to more flexibility and security in the general market.