The Build-to-Rent scheme was launched in 2012 as part of a series of government initiatives to increase the supply of high quality homes available for market rent in the private sector.
The Government’s aim was and still is to encourage more institutional investment and professional management into the private rented sector. Until now most rental properties in the UK are supplied by small to medium sized landlords, many with just one of two properties to let.
It is clear that Government initiatives are designed to incentivise institutional investment, new build properties in towns and cities, whilst at the same time recent tax and regulatory changes do the opposite to the small-scale investor.
George Osborne’s policy appears to be to “slow down” booming buy-to-let mortgage applications by introducing some punitive tax measures for small-scale landlords which he thinks will free-up more existing properties for first-time-buyers.
The bank of England is concerned about the amount of money on loan for buy to let and the effect this may have on the financial stability of banks if another recession should come along, hence the introduction of more stringent mortgage criteria and stress testing on landlord loans.
Several agencies have developed structures to encourage institutional investment in the private rented sector (PRS), including:
- The Build-to-Rent Fund itself, made available to large-scale investors as a fully recoverable commercial investment and is available as a loan to cover up to 50% of eligible development costs. Developers pay the loan back by refinancing the deal or selling on to an institutional investor within one to two years of completing a large rental scheme.
- The Homes and Communities Agency’s Build-to-Rent Fund Continuous Market Engagement Prospectus January 2015 to set out eligibility and offer bidding guidance for developers.
- The Private Rented Sector Taskforce offering independent help and advice to developers, local authorities, housing management organisations, local authorities and institutional investors wishing to seek funding for proposed schemes.
- The Urban Land Institute and the UK Residential Council’s Build-to-Rent: A Best Practice Guide focusing on factors such as valuation and planning issues, factors for deciding upon suitable locations including public transport, infrastructure, local amenities, demographics, sustainability, engineering and construction and fit out. Discusses how these schemes when completed and occupied will be managed.
- The Investment Property Forum’s Mind the viability gap: Achieving more large scale build-to rent housing, was a discussion paper explaining how the build-to-rent sector could provide an accelerated path to meeting the UK’s housing demands.
- A comparative analysis of the build-to-rent and build-to-sell sectors identified the barriers to market, such as the build-to-rent sector’s lower annual rate of return that falls short of investors’ requirements. It suggests solutions including consideration of affordable housing allocations, planning conditions, covenants and vendor land receipt levels and its appendices provide an illustrative development appraisal, together with a policy overview.
Three years on and we are seeing build-to-rent beginning to gain some traction. Go into most of our biggest cities and you will see for yourself evidence of large-scale housing developments, mainly in the form of large blocks of apartments.
Since January £4bn has been invested into the large-scale private rented sector (PRS) which, according to the Sunday Times, is around one-third of the money invested in UK homes in the whole of last year. The main investors joining this party are:
- RBS with a £1bn investment
- Legal and general with Dutch pension fund PGGM – £600m
- LaSalle Investment Management – £500m
- Grainger PLC – £850m
Added to this group is a new entrant to the scene: Greystar, one of America’s biggest investors in housing which has just acquired a 26.5 acre site in west London. This will be the largest build-to-rent scheme so far in the UK which, when finished, will be under professional amanagement.
These companies are all looking for a slice of the action, encouraged by Government policy, in a UK rental market that has more than doubled in size over the past 10 years. Build to rent will not be excluded from the 3% stamp duty surcharge imposed by George Osborne, but that does not seem to be discouraging this type of investment.
In Germany around 40% of rentals are said to be provided by investment institutions, whereas so far in the UK this amounts to around 2% according to Savills’s research. This shows the huge potential in the UK market for this type of investment, and Savills predict it could reach 10% of all UK rental property stock within 10 years.
The increase in supply will not only meet the Government’s objectives of relieving the UK’s housing crisis, the competition amongst landlords big and small will, they think, force all landlords to up their game.
Rental "Building Boom" will transform the market https://t.co/aJuCT6x9I5
— LandlordZONE (@LandlordZONE) May 18, 2016