When will build-to-rent take off in the suburbs?

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When will build-to-rent take off in the suburbs?

News : Building

If we are to meet the needs of UK renters over the coming years, low rise rental apartments need to form part of our thinking, writes Jonathon Ivory

 

It’s been long acknowledged that there is no silver bullet to the housing crisis. Homes of every size, shape and tenure need to be delivered to solve the situation. Part of that solution is the emergence of newly constructed, well designed and professionally managed homes for rent, neatly referred to as ‘build-to-rent (BTR).

 

Yet with the recent announcements from the ONS that the UK population will pass 70m in 2029, adding a further 3.6 million households in the next 11 years, and the Government’s increase in the annual housing supply target to 300,000 units, there is an urgent need to broaden the housing typology debate.

 

Much of the build to rent attention and activity to date has been centred on mid and high rise apartment living in the cities, with 50% of the schemes developed in London and the other half in cities such as Manchester and Birmingham.

 

The US multifamily asset class began with the development of suburban communities, the UK is following the model in reverse

 

Properties like these have a natural focus and draw for city workers, millennials (and even retired empty nesters) but we also need a product that provides a more suburban lifestyle for families. As demonstrated in the 2011 census, whilst the number of households renting in the 25-34 age group grew by 75%, for the 35 to 64 age group it grew by 95%.

 

Hence there is a requirement for low-rise apartments in this build to rent conversation. And here we can learn some interesting lessons from our US cousins. Whilst there is a plethora of multifamily housing in North American metro areas, the US market is in fact dominated by a product the industry refers to as “garden style”. These professionally managed apartment communities are mostly two and three storeys in height and are the favoured rental option for the vast majority of middle-income “grey collar” American families.

 

Indeed 40 years ago, the birth of the US multifamily asset class actually began with the development of these suburban communities. Urban multifamily did not come along until much later. Which is why it is interesting that the UK is following this model in reverse. This is in part because high capital values in our towns and cities have continued to push home ownership out of reach of middle income earners, thus creating a generation of renters, but also because young city dwelling professionals are such an easily identifiable target demographic for build to rent investors and the market has therefore opted to pick this low-hanging fruit first.

 

However, the current vogue for urban build-to-rent ignores the fact that there is growing demand for a different style of renting from a consumer that is most likely married, has children and owns a car. This consumer demands a home that affords residents their own front door and a garage, and yet still comes replete with the communal amenities, onsite management and maintenance that is becoming a mainstay of UK build to rent.

 

So why do we not have a UK version of the US “garden style” product?

 

In fact some investors have already made important strides in this area. One of the challenges holding back the growth of this particular sub-sector is the lack of suitable product. Owning and managing traditional single family suburban homes for rent is less efficient (and therefore less profitable) than operating the urban flatted equivalent.

 

From a construction standpoint, retrofitting a city centre apartment block to change its end use from apartments for sale to apartments to rent is far less challenging than comprehensively redesigning the typical UK suburban single family home development…yet the need is greater. This challenge requires the coordinated will of the entire value chain from developers, architects, contractors and most importantly planning authorities.

 

Asking all those participants to change the way they do business is a challenge. And what would be their motive? The truth of the matter is that surburban housing largely remains the preserve of UK PLC housebuilders who have little incentive to change this business model whilst it continues to work so well for them. For as long as the government continues to provide state aid, in the form of the ‘Help to Buy’ programme, building homes to sell will always be more attractive (read profitable) than building homes to rent.

 

If we are to meet the needs of UK renters over the coming years, low rise rental apartments need to form part of our thinking. As a nation we need a blend of tenures and house stock types, to take account of shifting demographics and the changing shape of the rental market. It’s time to broaden our housing horizons and step up to meeting the needs of our future renters.

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