Is Build to Rent the future of the PRS?

publication date: Nov 20, 2018
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

What do you think about build to rent?

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Savills “Changes to tax relief on buy to let mortgage interest payments have made many private investors take a second look at their portfolios. With less tax relief and rising interest rates, many have chosen to consolidate or leave the sector. Depending on how policy evolves on longer-term tenancies and rent regulations, the pace of flight may accelerate further. While putting pressure on buy to let, the Government has shown growing support for the institutional build to rent sector (BTR). Purpose-built rental blocks that are managed by professional landlords could help raise standards across the rental market and increase the supply of rented properties in areas of high demand. BTR is already gaining momentum, making up 8.7% of new housing starts in 2016/17. However, while BTR is gathering pace, it isn’t yet delivering enough homes to counter the flight of buy to let investors. From Q1 2017 to Q2 2018, there were just under 10,000 build to rent completions. In the same period, 72,000 buy to let landlords redeemed their mortgages.”

JLL “It has been a long journey, but Build to Rent has finally arrived in the UK. For years we have been anticipating the emergence of an institutionally-backed, purpose built and managed private rental sector. Now, with 125,000 units either completed, under construction or with planning, there is a clear pathway towards critical mass in the nascent sector. Our analysis found the 7 BTR schemes achieved an average rental premium of 9.3% when compared with the rental markets within 1km of each location.”

Source: Savills

I am a big supporter of Build to Rent. It adds much needed rental stock for the growing number of tenants. It also adds quality, brand new stock and means the institutional landlords are likely to rent to tenants within the law. Better still as a dog lover, some Build to Rent owners have a ‘yes to pets’ policy (as long as they are well behaved!).

Over time, I believe it will raise tenant expectations and the quality delivery by individual landlords. So, everyone wins. However, Savills point out the main problem which is:

“However, while BTR is gathering pace, it isn’t yet delivering enough homes to counter the flight of buy to let investors. From Q1 2017 to Q2 2018, there were just under 10,000 build to rent completions. In the same period, 72,000 buy to let landlords redeemed their mortgages.”

And in addition, the shortage of rental stock we have is for those on benefits and who are vulnerable, sadly this isn’t the market they tend to target – it’s more the professional market - which currently tends to be more easily affordable. You only have to look at the student market to see where Build to Rent will fit into the PRS. A report from the NUS some years ago showed the stock from institutional investment was, in the main, but not always, better quality than the PRS, it was also more expensive.

So although a good move, it’s not the panacea to the real problems suffered by tenants in the PRS.

For more download my comprehensive rental update.

Buy to let tax - Nicholsons Chartered Accountants How to rent - Property Checklists Renting a Room - Spareroom

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