21st December 2019
In recent years, there has been significant growth in the build to rent sector, which reports suggest will see heavy investment over the coming months and years, as the demand for privately rented properties hits an all time high. So, what exactly is the build to rent phenomenon, and could it be a threat to private landlords in the UK? Let’s take a look.
Build to rent explained
We’ve seen for a while now that the home-ownership rates have been falling, as people are finding it much more difficult to secure a mortgage, and indeed save for a decent deposit to buy a home. Alongside this, factors such as population growth, changes in the economic landscape, and a shift in people’s perception of the rental market have all contributed to the recent demand for more privately rented housing, not least so in the social housing sector.
While this has been a good thing for landlords, we’ve also seen some major changes in legislation, brought in to protect tenants, but which has left a lot of landlords wondering what the future holds. And there are some big players who have caught on to this, making build to rent an attractive option.
Following the announcement back in 2017 by Sajid Javid about plans to reform the housing sector by building new homes to keep up with the huge demand, we’ve seen a lot of new properties spring up in cities, towns and villages all over the country, and this is one of the key things that has allowed the build to rent movement to take such a big leap forward.
Rather that homes being built to be bought by landlords looking to rent them out, it has given the opportunity for companies to invest in properties built specifically for the rental market.
There are some big players putting up the money for build to rent projects, and the worry is that the average landlord isn’t going to be able to compete with such competition. Remember that changing tenant perception we mentioned earlier? People in general have a much higher expectation when they’re looking for homes, because whereas before rentals were perhaps seen as a temporary move while they saved for their own home, rental properties these days are more permanent. And so tenants need homes that will allow them to grow, raise a family, and do so with all of the convenience and comfort expected in a modern home.
In this, landlords have a much higher standard to live up to – you can no longer get away with poor décor, inadequate kitchens and bathrooms, and shoddy finishes. Your tenants are looking for longer-term accommodation, and so will need a home that will stand the test of time.
And this is really where the corporate investors are able to put their money down and give the tenants what they need. Where does that leave private landlords, though?
The options for private landlords
It’s been estimated that a massive £75 billion will be invested to the professionally managed private rented sector in the UK by 2025. That’s due to the growing demand for housing across the country. It’s a big number, and it’s even bigger if you consider that right now, there are huge numbers of individual landlords exiting the property market.
Lettings is an increasingly difficult industry to be in, and it’s tough for landlords. There’s no denying that. And yes, there are landlords out there who are struggling, who can’t keep up with the changes in legislation, and are taking a huge hit in income after the introduction of the Tenant Fee Ban earlier this year. But for those of us who are fighting through it, and despite everything, are determined to maintain growth and make thongs better for our industry, what does the future hold? Are we doomed to be held at ransom by these big companies?
Well, I doubt it – and here’s why.
On the whole, the build to rent sector is aimed at a specific client. You’d find, in reality, that many build to rent properties tend to be either blocks of flats, which are quick to build (and therefore quick to start getting a return on), or small units of apartments aimed at people like students, single people, young couples, or the retired community (who typically downsize when they retire or are widowed).
That’s not, in most cases, the market we aim for as landlords. We know that our income mainly comes from the other end of the scale – those who are starting on their career path, and are growing their families. Those who are looking for a family home, where they can stay long-term.
So really, there are two possible options. And these depend on your long-term needs.
It might be that you’re in a position where you’ve either grown a successful portfolio, and are looking to expand your growth in other directions. Or you might see the benefit of selling up, and putting your money into something which gets you a guaranteed return for little effort.
And yes, there are benefits to investing in build to let, if you’ve got the funds to do so. Perhaps you are one of those landlords mentioned earlier, who are seriously thinking about exiting the market in this difficult new landscape. In which case, placing yur cash in something like build to rent could be a viable option.
Sticking with the current market
Your other option, of course, is to put all of your efforts into that portion of the market you know so well. If you still have that passion for the game, and are prepared to ride out the changes, evolve with them, and push through in order to grow your current portfolio, then the option to stay true to yourself and stay on your chosen career path is what you need to focus on.
I think it’s vital that there are landlords still prepared to cater for this niche, as there will always be the demand for good, well maintained, family homes. And that’s really what we are here to deliver. And if we can do that with professionalism and a personal service, then we are doing justice to our industry.