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Dr Julie Rugg, co-author of a landmark report into the private rented sector, gives her thoughts on the state of the build-to-rent market.
In 2008, when we completed our first review of the private rented sector, the government and industry attention was focused on creating tax-efficient ways to encourage large-scale institutional investment for the sector.
Ten years later, Build to Rent (BTR) is definitely rooted and growing. By the end of the second quarter of 2018, Build to Rent had delivered more than 22,000 units with over 37,000 under construction.
In the US, the ‘multi-family’ market makes up 20 per cent of the PRS: confidence around Build to Rent indicates that this is not regarded as an unreasonable target for the UK.
It may be useful to be clear about its definition. The British Property Federation defines BTR as ‘new residential supply for market rent in clusters with a single owner using professional management’. Delivery is likely to be in blocks, with a scale of build in tens of units and no intention to sell any individual units within a block on to the owner occupied market.
“BTR indicates a sector becoming more professional; certainly the sector is more commercial”
BTR draws on international finance; purpose-built student accommodation – a first iteration of BTR – now trades on the global market.
Arguably, BTR indicates a sector becoming more professional; certainly the sector is more commercial, with a higher level of attention paid to customer service, with an eye to monetising the value of additional block amenities including a 24-hour concierge, gyms or rooftop gardens.
BTR creates a rental option that is very firmly aspirational: branding and design has a ‘boutique hotel’ feel.
There are advantages. BTR places customer service at the centre of the business, and this could balance a rental market where the power has generally sat with the landlord. Certainly, tenants can feel secure that their BTL landlord will not suddenly decide to live in the property themselves.
Notwithstanding these theoretical advantages, it is time to consider in a rather more neutral way what Build to Rent is actually delivering to the housing market at a local level.
We found very little in the way of published evaluation of BTR models: data remain highly market sensitive and we were left, then, with more questions than answers.
But questions are always useful. First, it would be helpful to understand the impact of a BTR development on local rent levels. It is hard to compare like with like when a BTR rent includes non-housing amenities.
However, if one virtue of BTR is to ease property supply, it may be expected that a BTR development would reduce rents at a particular location.
Alternatively, BTR may effect ‘gentrification’, and serve to increase local property and rental prices. Second, a large percentage of BTR developments are office-to-residential conversions.
“We found very little in the way of published evaluation of BTR models”
A recent RICS evaluation has indicated some dissatisfaction with the quality of some conversions particularly with regard to location: where developments are situated in industrial ‘hinterland’ and on the edge of city centres, there are issues with suitability for families.
Third, BTR may not necessarily be meeting local housing need: more work needs to be done on the degree to which pressures on ‘local’ housing are mitigated by development, particularly where those developments are subsidised by local taxpayers.
Dr Julie Rugg, senior research fellow, University of York