More than £5bn was invested in the UK build-to-rent sector in 2021, more than double that achieved in a pre-pandemic 2019. There are now more than 50 players operating in the UK market, with 13 new entrants into the sector last year, and the number of leases signed are rising, topping 10,000 in 2021.
BTR is not a burgeoning sector. It is here and it is showing its value. But there is something holding it back.
Setting out the case for the build-to-rent sector is not difficult. The uptick in leases shows that consumers are buying into the idea that renting your home can be just as rewarding as buying your own home, and the weight of capital chasing the sector shows just how attractive the sector is in terms of stable returns.
But building scale is proving difficult and those operating in the sector are finding the continual demand to justify their rental plans more than a little irksome.
EG gathered a trio of experts in the sector at MIPIM last week to discuss the challenges and opportunities the BTR market faces. Chief among those challenges were planning and viability, the way in which the sector is regulated and the constant need to prove the concept.
A misunderstood model
“The viability bit can be so painful when you are trying to get a local authority to understand that this is a security of tenure for customers,” said Alex Notay, placemaking and investment director at PfP Capital. “If I were building a shopping centre, the local authority wouldn’t tell me what anchor tenant I could have. But with BTR I have to spend three years haggling over the concept of affordability.”
For Notay, this time wasted in being “bogged down in negotiation” can – and has on numerous occasions – lead developers to abandon plans to deliver much-needed homes through a BTR scheme and instead opt for student housing, which gets an easier ride through the planning system because of its sui generis status. Student housing means no affordable housing, added Notay, which means that through a local authority being awkward it loses its opportunity to have more additionality and a broader housing tenure.
“The frustration I have on the policy context for BTR is that they look to it to fill the gap that decades of underinvestment in social housing has left and actually it is about additionality. It helps with wider affordability, but it is not an affordable product per se,” said Notay.
“It is the only sector where everybody focuses on the income of renting,” added Rebecca Taylor, managing director, BTR and multi-family business at Long Harbour, responding to Notay’s frustrations. “You don’t have that with student accommodation providers, you don’t have it with hotels, they don’t go to office renters or to the retailers and say, this is how much rent you should be charging. It’s just not even a discussion point. It’s the only sector where everybody focuses on income.”
Quality that is affordable
But Notay and Taylor don’t shirk responsibility when it comes to the focus on income and rental levels. Both admit that many of the early conversations about the BTR sector were around it being a premium offer, a new type of housing provision that provides valuable amenity, but amenity that comes at a price.
Now, said Taylor, they need to change that narrative from premium to quality. And ensure that quality does not necessarily mean expensive and unaffordable.
And, for Ozlem Gokce, managing partner at Corvus Invest, there are local authorities out there that understand the benefit that BTR can bring to place.
“I see BTR schemes being more supported by the authorities because of several reasons,” Gokce told the audience. “One of them is that BTR schemes are the ideal developments for urban regeneration projects because they can be the pioneering part of these projects. They can attract a higher level of talent pool and tenants for their scheme because of the amenities, services, maintenance, etc. They create an upper-scale quality.”
And, added Gokce, as evidenced throughout the pandemic with occupancy levels slipping only slightly before rebounding quickly, BTR can provide schemes with something of a guarantee on lower vacancy rates, particularly when compared with private rented accommodation.
For all of the panel, the challenges that could stifle the growth and success of the BTR sector in the UK can be overcome with a little education. Education around the additionality that BTR can bring, education around the benefits of security, quality and stability that the sector can bring to a place, education around how the sector can be a showcase for what good can look like, in terms of utilising modern methods of construction and properly embedding ESG – with particular focus around the S – into developments, and education around the fact that this is no longer a concept that needs proving, but one that needs supporting.
The panel
- Ozlem Gokce, managing partner, Corvus Invest
- Alex Notay, placemaking & investment director, PfP Capital
- Rebecca Taylor, managing director, BTR & multi-family business, Long Harbour
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
