Introduced in 2012 as one of a series of initiatives with the aim of increasing the supply of homes available for rent in the private sector, some people have hailed the burgeoning Build-to-Rent (BTR) sector as the potential saviour of the UK housing crisis. In this article, property solicitor Deborah Swanwick and planning lawyer Ben Garbett look at whether BTR has the potential to solve the industry’s problems.

Beginnings The Government’s recent White Paper “Fixing our broken housing market” spotlights its commitment to the BTR scheme as a means to improve housing supply, but importantly also as a way to improve choice, quality, security and diversity in the private rented sector. Significant research has already gone into factors for success. The Urban Land Institute and the UK Residential Council’s “Build to Rent: A Best Practice Guide” focuses on valuation and planning, location, investment, public transport, local amenities, fit out and on-going management. The British Property Federation and Savills, in conjunction with the London School of Economics, published in 2017 their recommendations for a statutory definition of BTR and support in planning and financial terms.

Purpose-built blocks of rental homes have in fact been common in other countries such as the US, Germany and France for several decades. However, it is a relatively new phenomenon in Britain.

Attracting investors and construction companies As the ability for individuals to get on the housing ladder becomes ever more difficult and so the trend for long-term renting rises, purpose-built blocks of rental homes are increasingly attractive for property developers and institutional investors.

Building companies who traditionally would build for sale are now switching to BTR to meet actual demand and achieve a reliable income stream. The advantage is in avoiding the downturns of the property sale market as well as tapping into government funding and investor interest.

BTR schemes are now an attractive asset class for institutional investors based on scale, good management, provision of services, amenities and yield.

High-profile examples The first large BTR scheme was East Village in Stratford, the former Olympic athletes’ quarters which were turned into 3,000 homes by Delancey and Qatari Diar. Half of the homes are managed by Get Living which operates on a tenant-friendly basis: no fee, no security deposit and 3-year tenancies with “tenant only” break options.

Grosvenor Estates now intends to obtain planning permission to build 1,500 rental homes in Bermondsey. It says it wanted to create a place for people of mixed incomes, backgrounds, life stages and jobs, and proposes a range of apartment sizes, from studio to three-bedroom.

Planning In August, DCLG published a summary of responses to its consultation “Planning and affordable housing for Build to Rent” which considered, amongst other things, the principle and definition of BTR, and “affordable private rent”, and whether national planning policy and guidance should be changed to support it.

A clear majority of respondents felt that there is a market failure in the BTR sector which could merit policy intervention, with support for a national approach on BTR to be set out and consolidated in planning policy. Defining and promoting BTR in the National Planning Policy Framework (and related Planning Policy Guidance) would certainly remove some of the current uncertainty about how to consider new BTR proposals, but achieving consensus on the precise definition is likely to be difficult.

There was also clear support for the introduction of an “affordable private rent” concept, and for this to be part of an affordable housing definition specifically tied to BTR schemes. However, respondents were wary about affordable private rent being accepted as a form of affordable housing for non-BTR schemes.

On 29 November the Mayor of London, Sadiq Khan, published a new draft London Plan which is intended to give a boost to the number of new and affordable homes given planning permission.

The Mayor has set a new London-wide house-building target by 2029 of 650,000 new homes (65,000 homes a year) – more than double the current delivery rate. He also wants to see more than 250,000 new homes built in London’s 13 outer suburbs as part of this development plan.

The new London Plan strategy discards outdated constraints and rigid density guidelines, calling upon home builders to develop sites at higher housing densities. Proposed development on sites that do not clearly maximise housing density should now be refused. The plan also includes a commitment for 50% of all new homes built to be genuinely affordable. Private developers will also benefit from a fast-track route to planning permission if they reach a minimum of 35% affordable.

Comment It is easy to see how a thriving BTR sector could potentially provide a major contribution towards meeting these targets. Current industry estimates indicate there could be around £50–70bn of new institutional investment available to enter the BTR sector, potentially generating up to 15,000 new homes per annum. And while the initiative offers little in the way of sale opportunities for small-scale landlords, the potential impact on renting could be huge and we could see higher standards which can only be a positive thing for the whole rental market.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.