Building homes for ‘generation rent’

The private rented sector is fast becoming the only housing option for low-to-middle-income families. Even with Help to Buy, home-ownership is too great a stretch for many, especially in expensive areas, and they are very unlikely to get access to affordable housing. We need to increase the supply of market rented homes as well as providing a different product that offers greater security, is more affordable and better managed to meet the needs of long-term tenants and the growing number of families with children who are making their home in the private rented sector.

Purpose-built and professionally managed rented properties owned by pension funds and life insurance companies have long held promise as a way of creating this new kind of renting in the UK as it has in the US, Germany and the Netherlands. But build to rent has been slow to take off and the small numbers of deals that have been done are focused on higher rent developments in London. This is in part because doubts have prevailed as to whether build to rent for low to middle income tenants in other parts of the country can deliver adequate returns for investors.

In our new report published jointly with the not-for-profit financial intermediary, Social Finance, we set out a financial model which demonstrates that build to rent can deliver an affordable, more secure rental product for modest and middle-income tenants in different parts of the country at the same time as delivering a competitive return for institutional investors at relatively low risk. To do so does not require public subsidy or the use of the government’s £10bn private rented sector debt guarantee, although both can be used to improve affordability or to improve returns. However, for low-income families, build to rent is unlikely to work without government support and, therefore, efforts to increase the supply of affordable housing must also continue.

Making build to rent work does not require significant new policy or legislation but it does require a mindset shift from everyone involved. For national government, it means providing consistent leadership around the importance of creating a new kind of rented sector in the UK, something that has been diluted by the renewed focus on home-ownership and first-time buyers. For local authorities, it means factoring build to rent into their strategic view of local housing supply and supporting its development through greater flexibility in the planning system. If local authorities continue to demand the same levels of affordable housing from build to rent as they do from build for sale developments, rented schemes will always lose out to for sale developments. For housing providers, it means understanding build to rent as a new and different product from affordable housing and homes for sale and using their balance sheets to kickstart the sector. Finally, for investors, the challenge is to move away from thinking about residential investment as an investment in capital gains to an investment in the long-term income generated by rented homes.

If we can get this mindset shift and develop strong partnerships between investors, housing providers and local authorities, build to rent could provide a critical part of the housing supply we need in the UK.

This article originally appeared in Progress magazine