11 March 2020
Lee Richards, FirstPort’s newly appointed Director of Build to Rent explains why the sector will be the one to watch in 2020.
There are currently some 40,000 occupiers of homes that were specifically built to rent in the UK. But there are another 100,000 homes currently under construction or in the planning pipeline. This represents a three-fold increase since 2016, based on data compiled by property lawyers Addleshaw Goddard.
One of the main reasons why institutional investors in particular are involved in Build to Rent (BTR) is because the demand for rental accommodation is not yet met by the market. With the cost of a residential property being eight times the average UK salary, the rental market is expanding rapidly to accommodate demand. BTR is set to grow and grow.
According to law firm Ashurst’s BTR Report: “It is estimated that the UK needs over 300,000 new homes per year to satisfy demand.”
The average house, “now costs almost eight times average earnings, an all-time record,” according to Ashurst. There are numerous well documented barriers to new property ownership currently in the UK. Low mortgage multiples available for average earners, deposit sizes required, and rising property prices have all contributed to the rise in the age of first-time buyers to 33 in the UK, and 37 in London.
The demand for good quality rental property has never been greater as the private rental sector expands to accommodate changing trends, with BTR being at the forefront of this growth.
Not only is this a great market opportunity for FirstPort but according to Barclays, who have also produced their own BTR Sectors Report, for every 500 build to rent units constructed 15 long term job roles are created.
Interestingly, possibly because there is such a shortage of available residential property, of those with planning permission granted, half the new BTR developments are expected to be outside London, in the rest of the UK. Indeed we are already in preliminary talks with developers building in Southampton, Bristol, Leeds and Manchester. If the Prime Minister is really intent on accelerating economic growth outside of the South East it’s hard to see what other sector would benefit a larger number of people than BTR.
Perhaps I’m biased but all the long term data points to BTR being massively important in the future. According to Keith Taylor, Director at AMA Research, the rental market in the UK: “Is expected to expand by over 1m households over the next 3-4 years.”
Whilst the immediate level of growth is exciting the trend is anticipated to last at least twenty years. The well-respected Centre for Housing Policy at the University of York believes:
“On the basis of current trends, [we] estimate that by 2040 up to one-third of 60-year-olds will rent privately. Government data shows that at present just 4 per cent of pensioners and 8 per cent of those aged 55 to 64 live in privately rented accommodation.
“The proportion of 25 to 34-year-olds who rent privately has been stable at about a third over two decades but has risen notably for 35 to 44-year-olds, from 16 per cent to about 25 per cent now.”
So not only is the BTR sector anticipating how the next generation of 30-year-olds plan to live their lives, but a significant proportion of the retired community too is planning on renting. There are many reasons for this. At the start of the property curve renting a well-constructed modern BTR unit matches many of the specifications the current generation of graduates experienced whilst at university. Towards the end of the property curve renting gives older property owners approaching retirement the flexibility to release equity or live in properties they would never have dreamt of being able to afford.
Either way it’s hard to argue with Ashurst’s conclusion in their BTR Report 2018: “The BTR development pipeline has grown fivefold in just five years, and investment in the sector is estimated to reach £50 billion by 2020.”
I may not have perfect 2020 vision any more, but it’s not hard to see that BTR is set to have a major impact on residential property in the UK, and of course, here at FirstPort.