Build to Rent: What exactly is it?
You might have heard of the term Build to Rent (BTR or even B2R) – and as you might expect, it’s all in the name. A housing model originally imported from the United States, Build to Rent property developments cater specifically to the rental market, typically holding more appeal to renters than the traditional private rental sector. While the concept is nothing new, the sector has become increasingly “defictionalized” in the last 10 years according to JLL’s executive director Adam Challis, and is only growing in demand.
The number of Build to Rent developments grew by 23% last year, while the British Property Federation predicts a further 200,000 new developments in the next two years. The sector in London is booming – with many foreign investors funding the development of new sites. September 2020 saw AXA acquiring Dolphin Square, one of London’s largest BTR developers, and investment volumes in the UK sector have jumped 30% in the first half of 2021 compared with the same period last year.
Private Renting vs. Build To Rent
Renting is an attractive option in a world where many require the flexibility of more than one location, or can’t afford to buy just yet. But what are some of the key differences between Build To Rent and the private rental market? BTR eliminates the risk of short-term leases, with options for longer tenancies over three years. Any inflation in cost is clearly laid out (according to a formula) thereby removing the fear of unfair increases in rent.
Additionally, no up-front fees are charged other than deposits, and with one landlord managing a whole development, getting in touch is easier and more efficient than what some tenants may experience with private landlords. To qualify as a Build To Rent space, developers must deploy a minimum of 50 living spaces, while tenants must fulfill specific requirements to qualify and meet the cost of living there.
Is it affordable?
Build to Rent can offer a whole array of advantages – stylish living, community spirit, and up-to-date facilities (to name a few)! Many are situated in central locations, making it easy to be in the heart of a city or town and experience everything on offer. However, the cost of these amenities means that rent is higher than the average market value. JLL’s Build to Rent Report in 2018 found that regionally renting a build to rent home costs 12% more than the average market price, and 8% more in London. So while you are getting value for money (a 1-minute walk to the gym? Yes please!) high-spec living can come at the cost of making it hard to save for a deposit if you wish to purchase your own home later down the line.
Not everyone is happy…
Not everyone endorses the idea of Build To Rent schemes planted in local neighborhoods, and the concept has faced some criticism. For example, residents in Drumcondra Dublin, have urged local authorities to refuse permission to construct 1,614 build-to-rent apartments. A development proposition made by US Property Group Hines, residents feel that the construction would generate excessive rental profit for an overseas institutional investor at the detriment of local resident salaries. Furthermore, locals fear this would also cause a surge in private rental prices, as private landlords would increase their rent to match that of the BTR development.
While having one landlord maintaining a whole development is seen as a perk of BTR’s, this has also been scrutinised by many as large scale ‘absentee-landlordism.’ In response, Hines argued that in an area where 51% of households were single occupancy or couples, the development responds to the demand and demographic of the local area. Likewise, Ged McPartlin, managing Director of Ascend Properties, follows suit and paints a much positive picture, stating: “While developers sense high yield, low-risk opportunities, local authorities sense an opportunity to simultaneously meet the demand for new homes while rejuvenating and reinvigorating their economies and communities by introducing this new, dynamic way of living.”
The effects of Covid for Investors
The pandemic has led many stakeholders to reassess their financial portfolios, and for institutional property investors, it’s no different. Residential property, despite being seen as the ‘poor cousin’ to commercial property, has become an attractive choice for investors as an asset class that weathered the pandemic resiliently – with BTR applications rising by 52% over the course of the pandemic.
The underperformance of commercial property in a world struck by Covid has led to the residential property sector gaining status as an investment unimpacted by GDP movements and technological disruption. Apache Capital co-founder Richard Jackson reiterates this sentiment, affirming that “You can’t digitise a bed, as I am fond of saying.” Whatever the climate, homes are always in demand, and the effect of Covid has increased the significance placed on the configuration of private spaces. Alongside fulfilling aesthetic requirements (at least with high-end BTR homes) the newly-found emphasis on wellbeing and sociability in a post-covid world serves to make BTR all the more appealing to consumers.
Who lives there?
While Build to Rent seems like the perfect package – from the carefully curated developer websites and promise of numerous amenities at your fingertips, who is living in these purpose-built homes and why? Ian Silverstein (founder of Silverstein locations) decided to lease an apartment at Greenford Quay, a development by Greystar of more than 2000 BTR homes – after selling his St Albans home. With a pre-covid annual income of more than 100,000, Silverstein appreciated the allure of feeling “like you’re living in a five-star hotel” and having what he described as, your own personal Soho House at home.
While a large portion of the BTR sector is marketed towards individuals, couples with children have also found it to be a friendly alternative to homeownership. Mr. and Mrs. Azinheiro, who earn a combined £105,000 and pay a yearly rent of £28,800 (£2400 per month), were attracted to the facilities for their one-year-old son Benjamin. Their BTR home features comforts like a playhouse and paddling pool, not to mention the reassurance of being surrounded by a safe and friendly community.
You can find more case studies of BTR residents in the full article here. Notably, many tenants include high-earning professionals, and the question of affordability cannot be ignored in terms of truly meeting the demands of housing in London. With Covid-19 highlighting the high levels of overcrowding in the private rented sectors, BTR is chiefly for young, single professionals, so doesn’t help in addressing this problem. This has also been highlighted by the London Tenants Federation, who have reported that investors should ensure developments include a portion of their housing as affordable units.
A little bit of history
While today it’s somewhat of a safe haven for investors who’ve faced losses with commercial, office, and retail space in the face of the pandemic, how did the BTR sector come about in the first place? In an investigation undergone by Property Investor, recent history suggests it was Margaret Thatcher who helped strengthen the rights of landlords which set the building blocks for BTR’s eventual success. Fast forward to a decade ago, and London hosted the 2012 Olympic games, a catalyst for the formation of ‘Olympic Village’ apartments in Stratford, which later led to the formation of BTR developer Get Living London. This was followed by companies like Fizzy Living, who opened their first BTR in Canning Town in 2012.
Finding developments in London:
If you’re looking for a Build To Rent property, where do you begin? There are a range of developers, and depending on the location you’re looking for, each has its own culture, character, and vibe. Below we’ve selected three of the top developers in London:
Dolphin Living is a London-based housing charity that aims to provide high-quality, truly affordable housing for working Londoners on modest incomes. With locations in Camden, Ealing, Hackney, Hammersmith & Fulham, Lambeth, Lewisham, Waltham Forest and Westminster, they currently own 800 homes for rent, and are looking to develop more throughout inner London. Dolphin Living offer four rent types – Social, Affordable, Market and Intermediate, according to your eligibility. In alliance with Westminster City council, they also offer a Westminster Homeownership Scheme which provides a grant of up to £54,500 if you have household earnings of less than £90,000 and savings of at least £22,500. Applicants need to be registered with Dolphin living and must have rented a property in Westminster for up to three years for a discounted rent (an intermediate rent) to be eligible.
Featuring premium apartments in Islington (Vantage Point), Bethnal Green (Dressage court) Maidenhead (Berkshire house), and Greenwich (Union wharf), Essential living offers a variety of spaces from studios at £235 per week to 3 bedroom apartments from £1,100 per week. All developments are no more than a six-minute walk to the nearest station, and living areas are equipped with the latest designer furnishings (who doesn’t want underfloor heating in British weather)? If you’re conscientious of your environmental footprint too, then rest assured with the intelligent use of up-to-date green technology in apartments that are incredibly energy efficient.
‘PUT SOME FIZZ IN YOUR LIFE’, say the team at one of the original BTR developers based across London and the South East. Featuring studio to 3 bedroom apartments in East 16, Hayes, Walthamstow, Lewisham, Stepney Green, Canning Town, Poplar and Epsom, prices range from £1,300 – 2,800 per month, and you can even do a virtual 1-to-1 viewing over FaceTime, Skype, or Whatsapp! Tenancies require a minimum of three months after which you can stay however long you want. Fizzy living makes a great choice for animal lovers too – rated the city’s most pet-friendly Landlord according to Timeout London.
All in all, the higher price point of Build to Rent developments, as well as the culture and vibe, don’t make it suitable for everyone – indeed catered predominantly for “affluent young professionals.” It’s still a worthy choice, however, for those seeking a hassle-free, high-quality lifestyle. With the lack of fees, rapid on-site help teams, friendly communal spaces, and many more perks, it’s worth looking into as an alternative to private renting – which can be just as expensive.
Looking for more info on rented homes? Read our article on Getting Your Buy To Let Ready For Tenants.