A series of articles considering how emerging technologies, social changes and a failing housing market are coming together to spark a renaissance in UK housing
Part 1 – Build to rent
‘They’ have a name, ‘Generation Rent’ and the private rented sector (PRS) has seen steady growth largely through buy to let models and the re-allocation of existing housing. It’s now approaching 20% of the UK housing stock but it’s a sector set for growth that will make a significant impact on new housing delivery with institutional investors increasingly attracted to sustainable, high quality, developments for investment delivering long term returns.
Few sectors in the construction industry have experienced comparable growth in recent years with an estimated 3-4 thousand private rented homes constructed in the year to 2018 (growth approaching 40%) and a further 10,000 planned over the following two years. This growth has largely been limited to London and Manchester but the model is spreading so how can developers in the South West capitalize and are there differences to the product from traditional build for sale model?
Incentives – They’re out there
The government and local authorities are increasingly seeing the build to rent sector in a positive light as a solution to providing an alternative source of high-quality homes to local communities. The government has formed the BtR taskforce offering a £10bn housing guarantee scheme for BtR homes and there are banks allocating significant funds for SME’s delivering BtR schemes (The BtR taskforce co-produced a best practice guide with the Urban Land institute available Here that’s worth a read).
Whilst the planning system hasn’t necessarily kept up with the changes, I’m having conversations with Local authorities who are taking an interest and actively looking for sites and projects to bring forward. In low value areas, historically neglected, this sector is being considered as a viable way for Local Authorities to invest regeneration capital providing an alternative housing model to increase the quality of the housing stock and the urban environment.
Who, What and Where?
This is an emerging market which is throwing up clear differences from the build to sell model. Most significantly are the variables from scheme to scheme and the need for a clearly defined business model considering demographic, location and specification. These are key contributors to the form a development will take and each will inform the nature and subsequent success of the development. In short, it’s a more targeted product requiring extensive early research, testing and scrutiny.
Demographic – who is the development for? The go to answer is young professionals who have never owned property, want to be flexible for employment opportunities and see value in ‘lifestyle living’. Without doubt a key driver to the market but alternative users such as key worker, exiting students and downsizers are emerging all of whom are seeing PRS developments as a viable alternative for high quality housing that isn’t currently available in the private rented sector.
Specification – What is provided within a development is directly informed by who; as the needs and expectations of tenants can vary significantly as can the income these variations might generate. Completed schemes are showing that whilst rent levels are set by a base specification there are opportunities for uplift that need to be considered.
Young professionals and exiting students often have experience of co-living from student accommodation so shared facilities such as lounges, gyms or even kitchens are acceptable which, in turn, inform the nature scale and design of the private spaces. These are facilities also considered valuable by downsizers looking for a social retirement. House-keeping, concierge, car pool vehicles and other services can all add value if the demographic is properly targeted and rent supplements IRO £25/month are being snapped up for allowing pets. All contributors to enhancing an investment return if targeted properly and considered at the feasibility stage.
Location – Where is the final key to deciding what form a PRS development takes. The most successful current schemes are in urban locations with good transport links and amenities within walkable distance (‘sustainable location’ within the definition of the NPPF). Strong employment rates and lower land values are also viability indicators and areas of commercial growth with poor housing stock. The incoming professionals need somewhere to live.
Successful schemes to date have been based on high density development with current studies suggesting viability requires 50 units plus but there may be opportunities where local needs and models change this.
Other Considerations – Unlike build to sell, BtR developments take a longer-term approach to investment return and need to consider on-going maintenance and management costs therefore design, operation and material specification have a greater significance. Low maintenance systems may have a higher capital cost but if the ongoing maintenance costs are reduced how does this impact on the long-term figures?
A sense of place has been identified as an important factor in completed schemes and a post code identity can be created through good urban design, architecture and materials all of which will contribute to the success of a development. Unit design is also a significant issue which will change dependant on the user group and the overall operation of the building.
Optimising net to gross areas is also a key consideration balancing the areas of non-chargeable service space against chargeable accommodation. Orientation, fenestration, low energy design and renewable energy solutions can add value through reduced running costs and enhance the perceived value of the development.
Versatility in the building such as serviced office or retail space could be considered dependant on the ‘Who, What and Where’ variables.
Finally, efficiency on project delivery through the use of off-site, panel, or even modular construction reducing build programme and generating income more quickly are all considerations to be addressed at the feasibility stage of a project.
Is BtR a good investment?
It’s historically considered a low return investment, but perceptions are changing, and this is catching the eyes of the fund managers.
The right project in the right location has been demonstrated to achieve a premium in rent levels. Add to this uplift income from bolt on services and it starts to look promising.
There is a market for high quality, sustainable housing that isn’t currently being met and the right project, targeted at the right demographic, in the right location is increasingly emerging as a viable investment and business opportunity.
About the author…
Tony Horsey – Managing Director, Godfrey Associates
Appointed as Manging Director of Godfrey Associates, in Jan 2019, Tony brings 25 years’ experience in architecture and as a property developer to this well established and award-winning architectural practice.
Leading a professional and focused team his diverse experience in residential, commercial and mixed-use projects, in the UK, Europe and the USA, underpins and expands the depth of knowledge that already exists in the business.
With a restless interest in emerging construction, BIM and design technologies, low energy design and urban regeneration Tony has been invited to speak at various University and professional events to share his enthusiasm for what he considers to be the bright future of the built environment.
Get in touch – email@example.com