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Build-to-rent holds promise for long-term investment

The housing crisis is a hot topic not just in the property industry but across society as a whole. A report from the House of Lords Economic Affairs Committee said that the UK government needed to boost its homebuilding target by 50% to create 300,000 new homes each year to tackle the housing crisis.

But while we all agree more homes are needed, what form they should take is less clear.

Market dynamics in particular locations will dictate what is appropriate, but we also need to consider more fundamental shifts in demand. As people live longer, a range of options tailored to older people becomes increasingly important, as does allowing family homes to be freed up.

With more people living alone, options that suit single people’s lifestyles and budgets are vital and as the millennial generation chooses a more transient lifestyle and prioritises experience over ownership, high-quality homes for private rental are also key.

Figures from the English Housing Survey last year found that almost half of 25- to 34-year-olds live in the private rented sector, up from less than a quarter in 2006. The proportion of families living in rented accommodation has also grown. Knight Frank estimates that by 2021, nearly one in four households in England will be renting.

A major contributing factor to the increase in renting is the difficulty of getting on to the property ladder. The Office for National Statistics said in April that the house-price-to-earnings ratio in the UK had hit 7.77, the highest in the official time series going back to 2002. Meanwhile, rising student debt and a preference for living in urban locations make buying a first property even more of a financial struggle.

However, it would be wrong to assume renting has become popular purely because of the difficulty of buying. Knight Frank’s research found that 21% of renters rent to be able to live in a better area; 8% do not want the responsibility of owning a home; 6% need flexibility for work; 6% are downsizers; and 5% do not want to be stuck in one location.

For too long, renting has been seen as a last resort. But renting has moved on and is no longer the murky world of damp-ridden HMOs that many in the baby-boomer generation may have experienced in their 20s.

For many younger people – some of whom will have been used to living in modern purpose-built student accommodation during their time at university – living in a build-to-rent (BTR) property, with a strong amenity offer and a focus on service, is a natural next step that fits their requirements.

“For many younger people living in a BTR property is a natural next step that fits their requirements [after university]”

The millennial generation, after all, is less focused on the long term. Traditional mortgage lenders have not yet adequately recognised the rise in freelancing and the gig economy and the ability to move anywhere around the world at short notice is worth more to many young professionals than the prospect of home ownership.

BTR shifts the focus for the homebuilding industry, which has traditionally concentrated on short-term capital values rather than long-term stable income. Developers need to adapt and recognise that real estate is increasingly about service as much as product: more than ever before, we need to understand the customer and their changing priorities.

Successful BTR schemes will combine a single-operator management structure with high-quality, sustainable, flexible building design to attract and retain tenants while offering them lease lengths to suit varying circumstances.

Source: Property Week

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Comment: Build to rent and its advantages are here to stay

The latest Scottish Build to Rent (BTR) Forum, organised by Movers & Shakers and held in Edinburgh last week, demonstrated the growth of the BTR sector over the last year as well as the increasing appetite of investors to put their money into Scottish housing.

BTR is the provision of purpose-built private rented units by investors and developers. Many housing industry professionals now see it as a key part of the solution to the UK’s housing crisis. Such accommodation is highly popular in parts of Europe and the US and its influence is now growing in the UK too.

Rising house prices and still-high deposits have squeezed many potential – especially younger – house-buyers from home ownership. Many also choose to rent as they do not want the burden of a mortgage and prefer to retain flexibility at this stage in their lives. This has strongly boosted demand for rental accommodation, particularly in buoyant cities like Edinburgh, where over a quarter of all households are in the private rented sector (PRS) and two-thirds of younger households. However, PRS supply levels remain constrained due to numerous factors including a lack of new-build housing, tax and legislative changes in the PRS, and the rapid emergence of holiday lets. This combination of rising demand and constrained supply has seen rocketing rent levels – over the past five years rents in Edinburgh have grown close to 6 per cent annually on average, well ahead of inflation and wage growth.

As one developer at the forum put it, BTR is about providing housing for “the forgotten majority”, i.e. those who do not qualify for social rent but who do not want or cannot afford home ownership and are being squeezed by rapidly rising PRS rents.

By creating new supply through leveraging in private finance, BTR has a key role in helping to fix Scotland’s housing market crisis. Although there are only around 700 operating BTR units across Scotland, there are now close to 5,500 additional units that have been approved in planning, in the planning process or at a pre-planning stage. If these pioneering schemes prove their worth, there will be no shortage of investors willing to accelerate this delivery still further. While the current pipeline also represents less than 2 per cent of all PRS households in Scotland, the UK as a whole is now at more than three times this level and London is nearly five times.

This delivery also has wider economic impact. Homes for Scotland recently calculated that each house built in Scotland creates around four jobs. The existing pipeline could therefore contribute around 25,000 jobs and we could nearly double this if we were to raise BTR delivery to that of the wider UK.

In terms of attracting BTR investment, Scotland benefits from relatively low entry prices; strong yields; multiple dwellings relief on Land & Buildings Transaction Tax; a Rental Income Guarantee Scheme, and more certainty around the regulatory regime relative to the rest of the UK. However, it is also important to recognise that greater political uncertainty here (due to the potential for Indyref2 as well as Brexit) and the now-different landscape for the PRS in Scotland with the new Scottish Private Residential Tenancy (which started in December), has caused some cooling of interest in Scotland from investors. And it was argued at the Forum that, with some exceptions, local authorities in Scotland do not have a good understanding of BTR and the bureaucracy of the planning process (particularly in terms of negotiating Section 75 contributions) and securing a building warrant has created obstacles to investment. As one investor put it: “Scotland needs to get going or the capital will move elsewhere.”

Scottish Housing Minister Kevin Stewart spoke at the end of the Forum and reiterated the Scottish Government’s desire for this industry to grow quickly. BTR is here to stay, the question now is how rapidly we can grow it and help to build the homes needed.

Source: Scotsman

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Build-to-rent schemes soar in London

Build-to-rent schemes have helped to more than double the total number of new homes registered in the capital.

The steep rise ends a period where London has been in the doldrums due to private homes for sale projects falling off as prices for one and two-bed apartments softened.

The surge in the capital helped to drive up total UK sites registered with the NHBC over the three months to August by 11%.

Soaring numbers of both private rental and to a lesser extent housing association schemes lifted house building starts by 145% to 5,774 compared with the same period a year ago.

A business development boss for one major contractor said: “Manchester and Birmingham have been the real hotspots for big build-to-rent schemes.

“While London has had its share of these project things are really taking off now in the capital with many projects out to bid.”

NHBC chief executive Steve Wood said: “We continue to see strong numbers in many parts of the UK with a substantial uplift in London, driven by increased activity by housing associations and the continued flow of inward investment on for-sale and private rental developments.

“The continuing uncertainties around Brexit and the UK’s economic outlook do not seem sufficient to dent confidence in the new homes market, where NHBC’s focus remains on helping developers to build more, high-quality homes for people across the country.”

More than 13,700 new homes were registered to be built in the UK during August, according to the latest NHBC registration figures, with strong growth in London.

Other regions to show growth over the three month trend period included Yorkshire & Humberside and the West Midlands.

NHBC – UK Registrations by Region
England – Regions June 18 – August 18 June 17 – August 17 % change
NORTH EAST 1,870 1,724 8.5%
NORTH WEST & MERSEYSIDE 4,373 4,786 -8.6%
YORKSHIRE & HUMBERSIDE 2,632 2,201 19.6%
WEST MIDLANDS 3,770 3,407 10.7%
EAST MIDLANDS 3,029 3,420 -11.4%
EASTERN 3,914 4,289 -8.7%
SOUTH WEST 4,156 3,698 12.4%
LONDON 5,774 2,354 145.3%
SOUTH EAST 6,457 6,653 -2.9%
TOTAL ENGLAND 35,975 32,532 10.6%
SCOTLAND 3,381 3,381 0.0%
WALES 1,230 1,529 -19.6%
TOTAL UK 42,547 38,296 11.1%

Source: Construction Enquirer

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Why are rent prices in UK tipped to surge 15% in next five years?

Experts predict rent prices in the UK will rocket 15% over the next five years.

They say it’s not because of Brexit or the rate of inflation, so what do they think will cause this to happen?

Why are rent prices likely to increase?

Well whilst the demand from tenants continues to soar – the supply of new rental property is diminishing, according to industry experts.

Many smaller-scale landlords are selling their properties following tax changes which have made buy-to-let properties less profitable

Who are the experts?

The Royal Institution of Chartered Surveyors (RICS) gathers views of chartered surveyors – who supervise properties, development and construction.

What else have they found?

It is the eighth consecutive quarter the number of rental properties has fallen, RICS added.

Despite the property market remaining “broadly flat”, other parts of the UK particularly, Scotland, Northern Ireland, much of the north of England, the Midlands and Wales are seeing more sales and higher price rises.

East Anglia and the South West are expected to see the sharpest growth over the period.

The survey also found the cost of rent is anticipated to increase by nearly 2% across the UK over the next 12 months as the impact of government policy kicks in.

How is government action affecting the market?

RICS chief economist Simon Rubinsohn said: “The impact of recent and ongoing tax changes is clearly having a material impact on the Buy to Let sector as intended.

“The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the build-to-rent programme, or government-funded social housing.

“This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure,” Robinsohn added.

Source: iTV

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Longer tenancies: more security for renters or a vote grabbing political move?

An estimated 46% of 25-34 year olds live in private rented accommodation. This has risen from 27% in 2006-2007 and, as such, the build-to-rent sector has seen massive growth. Of these, 81% of rental contracts are assured shorthold tenancies (ASTs) with a minimum fixed term of just six or twelve months, most allowing landlords to increase rents or evict tenants at the end of their contracts, without giving reason.

This can leave tenants feeling insecure, unable to challenge poor property standards (for fear of tenancies being terminated) and unable to plan for their future.

Earlier this month, the Secretary of State for Communities, Housing and Local Government, James Brokenshire, proposed the introduction of a minimum three year tenancy, with a six month break clause.

He wishes to offer greater protection to tenants, creating rental environments with more of a community basis. Tenants would be able to use the six month break clause and have greater protection if they wanted to stay for the full three years. Moving every six-twelve months can be expensive (deposits / moving costs / agents’ fees) and the proposals would help ease this issue. However, the proposal is not favored by everyone.

However, shadow housing secretary John Healey countered by saying this latest promise is ”meaningless if landlords can still force tenants out by hiking up the rent”.

But do tenants want longer tenancies? According to the National Landlords Association (NLA) only four out of ten tenants actually want longer contracts, and according to government data (even with the current forms of tenancy available) people stay in their rented homes for an average of nearly four years.

The proposals will help landlords avoid costly periods whilst searching for new tenants, offering them the flexibility to regain their properties when their circumstances change. However, many landlords worry about the time it can take to gain possession of their property in the courts. To this end, a call for evidence will be published this autumn to better understand the experience of users of the courts and tribunal services, including considering the case for a specialist housing court.

An eight-week consultation (until 26 August) is now underway and ministers are seeking views from landlords, tenants and other related organisations.

Lenders may also take an unfavourable view which could have a dramatic impact on the buy-to-let industry. ASTs gave lenders the confidence to grant mortgages against properties, as they knew they could repossess the property at short notice if necessary. But will the proposals make lenders wary about granting loans, or will they decide to increase the interest rate to reflect the additional risk? A further disadvantage for landlords.

Source: Property Week

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London overtaken by rest of UK in build-to-rent growth

London’s build-to-rent sector has been outpaced by the rest of the UK for the first time, according to new figures from the British Property Federation (BPF).

Regions outside of London have overtaken the capital in construction of build to rent homes as demand grows for new properties that are built for rental purposes and managed professionally in hotspots such as Manchester, Liverpool and Bristol.

Although the sector largely emerged in outer zones of London, an increasing demand for build-to-rent is coming from areas such as Manchester, with many university graduates staying in the city after finishing their education.

While London had a total number of 62,016 build-to-rent homes completed, under construction or being planned in the second quarter of this year, UK regions recorded 62,021 homes in the same period.

Ian Fletcher, director of Real Estate Policy, British Property Federation, said: “This is a significant landmark moment for build-to-rent, with the sector’s total number of homes across the UK’s regions overtaking London’s total for the first time ever.”

Fletcher added: “Recognition of build-to-rent’s potential to deliver much-needed new, high-quality rental homes is gathering momentum across the country.”

The research, produced by Savills and commissioned by the BPF, also shows that the total number of build-to-rent houses complete, under construction or in planning has risen from 98,723 in the second quarter of 2017 to just over 124,037 in the same period this year.

The build-to-rent sector, which include services such as a 24-hour concierges and broadband as part of the rent, is aimed at mid-market buyers who want a wider package of provisions with their property.

One British property developer announced last year said that it would be offering free Uber rides which were included in the price of the rent.

Source: City A.M.