COVID-19 has accelerated collective thinking on what shape our town and cities should take. As we look at the future of the high street, what role does build-to-rent housing have to play, and could this be the answer when it comes to injecting fresh investment and helping our local communities thrive?
As my colleague David Jobling recently wrote, towns and cities need to be liveable, where communities can flourish and value is viewed through wellbeing, social, environmental and commercial lenses. Private investment will be integral in helping to achieve this. But with real challenges facing the retail and commercial sectors as well as the threat of some slowdown in the ‘for sale’ residential market, where might this investment come from?
In the COVID-influenced marketplace, build-to-rent looks to be amongst the most resilient sectors. Increasing numbers of investors are being attracted to the sector because of its strong fundamentals, competitive potential yields, and perceived resilience in a challenging economic environment.
Whilst the COVID-19 crisis still presents short and long-term risks for build-to-rent; rent take, levels of enquiries, and lease-up rates are generally reported to have so far remained broadly in line with historical averages.
The build-to-rent sector with its relative resilience, long term approach and focus on creating good quality assets and places make it a good potential match for the UK’s towns and cities.
What are the key opportunity areas?
Private investment – long term income
Collaborating with the private sector can secure investment, create more homes and great places and provide long-term income sources for local authorities, at a time when they face ever-increasing financial pressures. The partnership of local authorities and private developers in build-to-rent, in a way that delivers on the above, is tested and proven. Facilitating partnerships and deal structures, we have seen first-hand how local authorities and private developers can collaborate around land, finance and expertise to arrive at high quality assets that provide long-term income streams for both parties, and that positively contribute to places.
Long term commitment
Local authorities and communities are of course committed to places for the long term. Whilst the deal map will vary, ultimately the business model of build-to-rent centres on long term operation of assets. Therefore, in the same way that local authorities and communities have a vested interest in the long-term health of a locality, so too does the build-to-rent sector. It means that everyone’s objectives will be aligned at the outset.
Creating communities quickly
One advantage build-to-rent can have over build-for-sale is speed, something that certainly plays to Boris Johnson’s focus on ‘Project Speed’ for the post-COVID recovery. Absorption rates of the product are typically higher, and this means that construction can be quicker and occupiers in place faster. Key benefits are more rapid creation of communities and faster flow of revenue and tax receipts.
Environmental benefits
The average level of car ownership can be lower in the private rented sector when compared to owner-occupied homes, meaning that build-to-rent may help to reduce pressure on car use and parking. Furthermore, because build-to-rent assets are usually managed at scale by one operator, it may be easier to enhance environmental performance of buildings and influence occupier behaviour.
Diverse communities
It is often assumed that the build-to-rent sector only caters for young professionals. Whilst young professionals are an important customer segment, there is a broader appeal and customer base. Private renters are getting older and caring for more children on average. Build-to-rent can also be offered at a range of price points. Furthermore, tightly defined asset classes are increasingly being blurred with a shift of thinking towards greater flexibility. There are real opportunities to merge later living, student and build-to-rent accommodation into a multi-generational asset class.
The approach to planning is key to enabling build-to-rent
How the planning process views and treats build-to-rent is a crucial factor in enabling investment in a given location. Policy H13 of the London Plan recognises that the build-to-rent and for sale development models are different. It also recognises the potential role build-to-rent can play as part of the mix in accelerating the housing delivery.
Policy H13 stipulates that affordable housing obligations can be provided on build-to-rent schemes solely through the provision of discounted market rent product, accounting for at least 35% of homes offered with at least a 20% discount on market rents in perpetuity. This approach has likely contributed to the acceleration of build-to-rent development in London by enhancing the viability of schemes. This approach also enables access to amenities for all residents and consistent management of all the homes, helping to prevent exclusion and division in the community.
Whilst the National Planning Policy Framework (NPPF) recognises build-to-rent as a distinct asset class and makes recommendations for treatment akin to H13 of the London Plan, this is not currently applied by all local planning authorities. Understanding of and familiarity with build-to-rent is variable across the country, although there are regional hotspots for the sector including Manchester and Birmingham. Nevertheless, if the approach in line with H13 of the London Plan was adopted more broadly it could further boost build-to-rent around the UK. Local planning authorities may even consider designation of build-to-rent use classes in certain areas with a view to promoting investment.
The future of build-to-rent in our towns and cities
As we continue to navigate through the COVID-19 crisis, the future of towns and cities and what shape they take will be at the fore.
The build-to-rent sector could be an opportune partner for local authorities and communities in bringing forward investment, creating places that flourish and boosting stocks of good quality homes at a variety of price points.