There is no doubt that projected growing high tenant demand, and active government encouragement, is leading to the rapid growth of build-to-rent housing provision. But how much will this affect the traditional private landlord?
The government is putting great store by its policy of discouraging the growth of the small-scale landlording sector, and encouraging the large-scale institutional property investor to provide a lot of the housing that will be needed in the future, particularly in the larger cities.
So far the strategy seems to be working. The growth of small-scale buy-to-let is tapering off, and large scale-investments in large blocks of professional and student housing is surging, with new-builds springing up everywhere in London and the provinces, particularly in the inner cities.
What could be described as a boom in corporate investment, means that large-scale landlords in the UK, backed by institutional finance, have entered the market with enthusiasm. Build-to-rent blocks are springing in major UK cities intent on what these investors have claimed, is about to “shake up” a private rented sector (PRS), until now a largely cottage industry dominated by individual buy-to-let landlords.
Where the small-scale landlord is often depicted as amateurish and not quite kosha, the big boys promise professional management, high-end accommodation and services, and stable pricing all designed to provide long-term renting.
However, build-to rent, although it is growing fast, has a long way to go before it makes a large dent on the small-scale rental market. Around 97% of the UK stock of rental accommodation is provided by small-scale traditional buy-to-let landlords, many of them owning just one or two properties.
According to a recent Financial Times (FT) article, most tenants occupying the new build-to-rent blocks come from the upper quartile of renters, those with professional or skilled jobs with above average incomes, though some of the developers says they will be targeting families with long-term letting in mind.
For those looking for high-end facilities, such as sports clubs and gyms on site, in shiny glass towers, the formula should work just fine, but not everyone is happy with the service they are getting, and with Knight Frank predicting average net yields of only around 3.9% by 2022, it leaves the big investors with little room for error.
Councils have been notorious for bad management of their rental properties in the past, from a poor maintenance service, to poor rent arrears records, these new “professionals” have yet to show they can do better.
The signs are already ominous. A recent survey conducted by the FT showed that several of their readers had had serious issues. From a dozen respondents renting from corporate landlords, nine of them reported problems, from poor maintenance to rising damp and vermin infestation. “I won’t ever rent from a large company again. Individual private landlords have been infinitely better and more accommodating,” one respondent told the FT.
Jacqui Daly, director of residential investment research and strategy at Savills had said, “I don’t think build-to-rent is ever going to be for everyone,” but “more and more Britons are likely to be renting from companies rather than individuals in coming years, which should offer greater certainty for many tenants.”