Property Investing 101

Build-to-rent: how developers are profiting from Generation Rent

More than £2bn was invested in purpose-built rental flats last year – but this is no way to solve the UK housing crisis

A flat in a large build-to-rent development in Wembley Park, London. Photograph: Sarah Lee for the Guardian

The number of UK residents renting privately has doubled over the

past decade, with some 20% of households (30% in London)

now in private rented accommodation. Into this growing gap

between social housing and home ownership the build-to-rent

model has given property developers a new way to profit from

Generation Rent.

In 2017, the burgeoning build-to-rent market, comprising purpose-built

blocks of rental homes, attracted £2.4bn in investment and is forecast

to grow by a further 180% over the next six years.

The attraction for large pension and insurance funds, such as Legal &

General, is clear. They have the capital to develop large blocks of flats,

which are let out and managed long term by a single company rather

 than being sold to individual landlords. This provides institutional

investors with a fairly stable, long-term income stream.

Build-to-rent company Fizzy Living, for example, boasts of providing a 

five-star service and promises to complement the “hectic lifestyles of

work-hard, play-hard professionals”.Tenants are typically offered longer

tenancies than for standard rental accommodation, with contracts of up

to three years or more, and other amenities, such as gyms, communal lounges

and cinema rooms.And for tenants, there’s a promise of a more streamlined

experience, with bespoke, high-quality management rather than an unreliable,

individual private landlord.

Because build-to-rent has the potential to increase the supply of homes

and improve conditions for renters, many in the property world, such as

investment firm Venn Partners and consultancy Lichfields, have touted it

as a way to solve the UK housing crisis. It has also received considerable

government support, including a £1bn build-to-rent fund.

But the benefits of build-to-rent come at a premium. One study found

that London’s new private rental “communities” were, on average, 11%

more expensive than rental properties nearby. In the Get Living development

at Elephant and Castle in south London, renting a one-bedroom flat costs 

£1,841 a month. As the company requires a household income of 30 times

 the rent, you’d need to earn almost £60,000 a year to qualify as a tenant. 

As the government latches on to the promise of build-to-rent in accelerating

housing supply, it seems likely that these schemes will be subject to

 less stringent requirements to provide affordable housing.

So, despite suggestions that build-to-rent will empower Generation Rent,

these high-spec products only really seem to be an answer for affluent young

professionals.

Meanwhile, a Shelter report in January found that half of families in

UK social housing are being ignored or refused help when they report

poor or unsafe conditions. Driven by the market for the market,

build-to-rent is just another so-called solution that continues to

allocate housing on the basis of wealth rather than social need.

https://www.theguardian.com/housing-network/2018/apr/11/
build-to-rent-developers-profiting-generation-rent