Analysis: The rush to build to rent

The number of build to rent homes in the pipeline is attracting attention, although the sector says there is still a stigma around renting, writes Josephine Smit.

Build to rent homes: 30,000 homes are in the pipeline in London, and 27,000 in the rest of the UK
Build to rent homes: 30,000 homes are in the pipeline in London, and 27,000 in the rest of the UK

A deal to deliver 5,000 homes in the North and Midlands; planning consent for 624 units in Manchester - these are just two of this month’s big moves in build to rent. This is a busy sector. It is one of the routes to realising the government’s aspiration for a million new homes to be delivered by 2020, and is receiving government support through its build to rent fund.

To date, the build to rent fund has invested more than £600 million in facilitating the delivery of 5,800 homes. That total includes deals announced last month by housing minister Brandon Lewis for schemes in Canary Wharf and Walthamstow in London, which will provide a combined total of 1,046 units.

Snapshot of the sector

Government policy has helped give confidence to investors and developers and prompted a number of players to generate ambitious programmes. These include:

Investor Legal & General, which has partnered with Dutch pension fund manager PGGM on a £600 million fund to develop build to rent homes across the UK

Get Living London, the residential owner and manager backed by Qatari Diar Real Estate Investment, investor Delancey and pension fund asset manager APG. The firm is managing the transformation of the former Olympic village in Stratford, east London, into East Village

Essential Living, which is including purpose-designed rental apartments for families at its Creekside Wharf scheme in south-east London.

Westrock, an established international developer that has £70 million backing from M&G Investments for its first four build to rent schemes in the UK - all of which are in Greater London, and involve converting offices into homes.

Hub, a private London developer with 1,200 units in the pipeline.

Moda Living, a partnership of developers Generate Land and Caddick Developments, which also has a joint venture with Middle Eastern investor Apache Capital Partners. Moda is developing across the regions, including in Leeds, Manchester and Liverpool.

Alongside these businesses, some established housebuilders, housing associations, contractors and local authorities have entered the arena.

Housebuilder Crest Nicholson and contractor Willmott Dixon have both done deals with M&G, with Willmott Dixon working under its Be:here dedicated private rental brand.

Fizzy Living was started by housing association Thames Valley Housing Group four years ago, and has since grown with backing from investors Macquarie Capital and the Abu Dhabi Investment Authority. Manchester City Council has entered a joint venture with its own pension fund to deliver both market rent and private sale homes.

According to property body the British Property Federation's (BPF) build to rent map, which charts development activity, more than 30,000 units are estimated to have been completed, be under construction or have secured planning permission in London, and more than 27,000 units are in the pipeline across the regions.

Balancing communities

But it isn’t all plain sailing for the sector. This month, 11 build to rent developers and investors wrote an open letter to Brandon Lewis, published in The Times. The 11, which included such figures as Helen Gordon, chief executive of residential investor Grainger, said that councils and planners believe renting is "stigmatised", and called for measures to ease the development process, including the designation of a proportion of larger public sites for build to rent schemes.

The private rented sector (PRS) as a whole accounts for around 20 per cent of UK housing tenure in the UK, but only around 10 per cent of landlords in the sector have traditionally been companies. Most operators are individual investors, and PRS has become associated in some minds with poorly-managed properties and transient communities.

Steve Sanham, development director of Hub, which earlier this year won consent for a 239-home office-to-residential conversion in Wembley, north London, said: "There aren’t established build to rent communities yet, and everyone reverts to thinking of buy to let. That’s very different to what we’re trying to create."

In London, the mayor's annual housing targets include an expectation that 5,000 units will come from the build to rent sector, and attitudes are changing, says Sanham. "A decade ago, local authorities were putting requirements on schemes stipulating that homes couldn’t be rented, because they wouldn’t be sustainable. Now there has been a U-turn. These schemes can be sustainable, because they have a landlord who is there for the long haul."

For London housing association Peabody, there is a clear social imperative to build to rent, points out Kitson Keen, its head of market rent strategy. "We now see it as a critical part of our development pipeline, particularly in regeneration and placemaking contexts."

Build to rent developers contend that, far from creating blocks of transient renters, they can help create mixed communities and aid regeneration and placemaking. Peabody is developing build to rent as part of mixed-tenure schemes. "We often develop four tenures on a scheme now – it creates a community very quickly," says Keen.

Russell Pedley, director of architecture practice Assael Architecture, which has worked on build to rent schemes such as Essential Living's Creekside Wharf scheme, says that the development process can also help regeneration to deliver transformational change.

"For a private sale scheme, you might be asked to design for a phased build of, say, 50 to 60 apartments at a time. A build to rent developer will want the whole scheme built in one go," he says.

Fizzy Living estimates that around 20 per cent of tenants in each of its buildings has stayed there since it opened. Managing director Harry Downes says the build to rent business rationale is based on keeping tenants happy and in their homes.

In spite of the challenges, Downes sees no let up in build to rent’s progress. "It’s all about supply and demand, and in the last 15 years we’ve been way behind on supply," he says. "The fact is that the average age of the first time buyer in London is now 42, so whatever happens - whether it is tax changes or a vote to leave the European Union - we will still have a problem housing our population, and we need to build more homes."

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