Is Build-to-Rent the answer to the rental crisis?

It is just over ten years since London hosted the Olympic Games. Not only did the 2012 Olympics bring some much-needed regeneration to the East London town of Stratford, it was also responsible for kick-starting the Build-to-Rent (BTR) sector here in the UK.

Once the Olympic Village in Stratford had finished housing the medal hopefuls, it was successfully converted into one of the first BTR schemes in this country: East Village.

Its formation was greatly helped by the Montague Review; a 2012 report that had been commissioned by then Housing Minister, Grant Shapps, which helped pave the way for more institutional investment into BTR.

Fast forward ten years and the latest figures from the British Property Federation (BPF) show there are now 237,362 BTR homes in the UK, 73,739 of which are complete, 47,764 under construction and 115,859 in planning. The majority of these sit outside of London with a total of 96,585 units in the capital and 140,777 outside.

Joint research from the BPF and Savills identifies the number of BTR homes could increase to 380,000 by 2032, meaning 8% of UK homes for rent will be purpose-built, up from 1.5% today, so could it help ease some of the pressure in the rental market?

Traditionally, BTR has been seen as the preserve of the wealthy professional, with apartments catering to generation rent and the longer-term rental market. Far removed from the damp and poorly-managed dwellings associated with some pockets of the second-hand rental market, BTR apartments can include features such as swimming pools, gyms, a concierge and even childcare.

As more BTR units are built however, we are likely to see a subtle shift towards the family market. BPF and Savills predict single-family homes will make up almost a fifth - 18% - of BTR stock in ten years’ time compared to 12% today.

Perhaps one of the only downsides to BTR is the affect it has on the price of other rental properties in the surrounding area. One would assume that in an area where BTR is prevalent, it would push down rental prices due to the increase in supply.

In reality, this isn’t the case, and it has the adverse effect of pushing up rental prices.

BTR units usually command higher rents than other similar sized second-hand rentals in the area and that in turn can escalate the rents even on second-hand properties, with rental prices calculated in part based on similar surrounding properties.

Nevertheless, this does not overshadow the overall positive BTR could have on the rental market. Indeed, the new build purchase market also, with BTR developers often incorporating an element of new-build within them and vice versa.

The Government’s backing of BTR has also resulted in some positive planning changes in order to facilitate the land needed to build on, as well as aiding its mission to professionalise the private rental sector.

The schemes are usually backed by large institutional investors, with a fund for repairs and updates often factored into the yield already, which means properties are usually maintained to a high standard – something that is not always true of the second-hand market.

Given many BTR units are newly built, they also have the added advantage of carrying a good Energy Performance Certificate (EPC) rating.

While the BTR initiative is still predominately focused on the big cities such as London, Birmingham, Manchester, and Leeds, we may also see this change as rental demand continues. BPF reports that 47% of local authorities now have BTR in their housing pipelines, versus just 20% in 2017.

With the private rental sector arguably at crisis point, anything that provides more options for renters can only be a good thing.

While BTR alone will not solve the rental crisis, with Generation Rent showing no signs of slowing, it could help ease the pressure and free up more second-hand rentals. Hopefully the Government will continue to do all it can to support the growth of BTR.