How to revive build to 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. The UK’s private rented sector though remains characterised by older properties, short term tenancies and variable quality. What’s more, the market is dominated by small buy-to-let landlords who own one or two properties each – just one tenant in ten rents from a professional, large landlord. Families in “generation rent” deserve a better deal and private finance can provide part of the answer.

In the US, Germany, and the Netherlands purpose-built and professionally managed rented properties have filled this gap in the housing market, often being owned by pension funds and life insurance companies. This approach has long been held out as a model to improve renting in the UK, but build to rent has been slow to take off and the small number of deals that have been done focus on high rent developments in London. This is in part because doubts have prevailed as to whether build to rent can deliver adequate returns for investors if serving low to middle income tenants in other parts of the country.

In the Resolution Foundation’s new report published jointly with Social Finance, the not-for-profit financial intermediary, we bring new evidence to this debate, setting out a financial model which demonstrates that build to rent can deliver competitive returns for institutional investors at relatively low risk. To do so does not require government intervention – there is no public subsidy or use of the government’s £10 billion private rented sector debt guarantee, although both can be used to improve returns or affordability. However, build to rent is unlikely to work for the lowest income families 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 shift in mentality from investors, housing providers and government.

Firstly, investors need to move away from thinking about residential investment as an opportunity for short-term capital gains to focus on the value of a long term income stream generated by rented homes. In many ways this is more akin to long-term infrastructure investment than the quick buck real estate market.

Secondly, housing providers, especially Registered Providers, have a pivotal role to play by using their balance sheets to kick start the sector.

Thirdly, local government must factor build to rent into its strategic view of local housing supply and support its development through greater flexibility in the planning system. Local authorities should think long and hard about the burdens they impose on developers – if they 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.

Fourthly, national government must provide consistent leadership around the importance of creating a new kind of rented sector in the UK to give investors confidence. Last year’s positivity around build to rent has become diluted of late by the government’s drive to woo home owners and first time buyers

If more investors, housing providers and local authorities can get around the table to develop strong partnerships, build to rent could provide a critical part of the housing supply that we need in the UK to give a better deal to “generation rent”.

This article originally appeared on ConservativeHome