What are the pros and cons of Build to Rent?
Build to Rent is emerging as a sub-market of the broader private residential property market, in particular in areas such as London where 30% of the population is renting. It refers to those properties that are being constructed especially for the rentals market, as opposed to properties that have been built for sale and are later rented out. It’s a subdivision of the property market that is growing substantially – but what does it really offer as a development solution? These are the key pros and cons of Build to Rent in the UK.
The Pros of Build to Rent
- There is a lot of scope for expansion in this market. For example, in 2017 the Build to Rent market attracted a large amount of investment to the tune of £2.4 billion. Growth in investment in Build to Rent is forecast to be around 180% over the next six years.
- Investors tend to see Build to Rent as an attractive prospect. Build to Rent projects are usually structured as a purpose built block of rental homes that don’t go onto the market but are completed and then rented out. For investors, this represents a stable and long-term income stream.
- We are living in an era of Generation Rent. 20% of households across the UK are now renting (30% in London) and this proportion is forecast to increase by the year.
- Tenants benefit too. When properties are Built to Rent tenants tend to enjoy a more streamlined experience with high quality management, as opposed to an individual landlord without the requisite skills and experience to deliver a professional service.
- There is considerable government support for Build to Rent. In fact, Build to Rent has been pitched by many as offering a fast and effective solution to the housing crisis in the UK. As a result, the government has provided considerable support for Build to Rent projects, including a £1bn Build to Rent fund.
The Cons of Build to Rent
- Longer tenancies for tenants. This could be a “pro” for both developers and tenants but is also something that could be restrictive. Because many Build to Rent properties have offered longer tenancies of three years or more this could be an expectation now for any property that falls into this category.
- Fewer requirements to provide affordable housing. Again, this also has a “pro” built in for developers looking to get away from the government standards to provide more affordable housing as part of new developments. So, far it seems that Build to Rent projects are bypassing many of the more stringent requirements to provide affordable housing as the government looks to the Build to Rent market to help solve the issue of housing supply. The “con” here is that it doesn’t look like Build to Rent will solve the nationwide problem of a lack of affordable housing.
- Property is not sold for profit on the open market. Instead, income return on construction comes in the form of an ongoing rental stream.
If you’d like to find out more about Build to Rent, and the potential challenges and benefits, please get in touch with The RG Group today.