It is common knowledge that those who fail to learn from history, repeat it. This is why it is necessary to understand the history of the housing sector in the UK – to avoid repeating past mistakes and prepare for unexpected developments. In this post, we will have a look at the Build to Rent history in the UK.
The structure of the United Kingdom’s housing sector we know today, has evolved significantly over the decades. The Private Rented Sector and Build to Rent industry haven’t always been the dominating housing sectors as they are today. Moreover, understanding the evolution of the housing market is key to preparing the UK for a future with BTR.
History of Home Ownership in the United Kingdom
Homeownership is a fundamental aspect of the UK housing sector. Over the last few decades, more than half of the population become homeowners. However, this hasn’t always been the case.
Based on an article by Allpeers on “The History of UK Home Ownership” homeownership was an unpopular basic model of housing in the UK. Following WWI, less than 25% of UK homes were occupied by their owners as renting was the order of the day. This was because the wealthy owned most of the properties and rented them out.
Private renting continued as the dominant form of housing tenure until after WWII which brought about governmental rental control legislation. It forced many historic rental blocks built in the interwar period, to split up with only a handful remaining in-tact.
However, it wasn’t until a few decades after the second World War that homeownership rose to around 33%, and particularly the 1950s and 1960s was the moment homeownership outnumbered the rentals for the first time. Homeownership peaked in 2001 with about 70% of Britons owning their homes. It is still evident in recent times with the UK seeing more homeownership than any other Western European nation. This boom can be linked to the Thatcher government policy, offering council tenants the opportunity to buy their council homes at a discount. Over 2 million took up that offer, leading to an increase in homeowners.
The Re-emergence of the Property Investor in the ’80s and ’90s
Ever since the peak of homeownership in 2001, there has been a steady decline yearly in the dominance of homeownership across the UK. We can trace back the re-emergence of an investor/institutionally friendly residential asset class, to 1988. And also the introduction of the ‘Assured Short-hold Tenancy’ by the Conservative Government, ending decades of rent controls.
The eventual re-election of a Labour Government in 1997 cemented the confidence in the sector. It chose not to reverse this lease structure and the ability to charge ‘market rent’. Ever since then the percentage of the private rented sector homes in the UK housing market has risen from 9% to 24%. It is largely due to the disposition of the younger generation towards rented accommodation over homeownership. Another reason is the ever-increasing home prices within the UK.
With the going trends, the Private Rented Sector will only rise in the near future. We estimate that it will reach a 34% increase in the coming years.
Growth of the Private Rent Sector and Eventually the Build to Rent Sector Within the United Kingdom
In a bid to establish a more stable rental sector, property investors in the UK have looked to adopt the service-led culture of the Multifamily sector in the United States. This has led to the development of the Build to Rent concept in the United Kingdom.
We see the rapid expansion of the Build to Rent history sector in the last few years. This rapid growth is large because of outputs from Sir Adrian Montague’s review of barriers to institutional investment into the Private Rented Sector in 2012. The Government also introduced a £1bn Build to Rent construction fund and a £3.5bn Debt Guarantee product. It was a catalyst for units previously earmarked for sale instead of being delivered for rent.
Build to Rent expansion final reasoning:
This support continues with the rebranded ‘Ministry for Housing’, and their sub-agency ‘Homes for England’. It is a big group of advocates of the sector and understands the importance of educating Local Authorities. The agency and consultancy sectors are becoming more educated and familiar with the Build to the Rent asset class. They have been helped by the production of two Build to Rent guides, produced by the ULI. This education is filtering through the architects, planning and viability consultants. Which in turn leads to a more rapid expansion of the Build to Rent sector.
The final reasoning for the growth of Build to Rent is due to The Bank of England introducing certain measures. This includes limiting the percentage of buy-to-let mortgages for each lender, tightening the terms of such mortgages. Moreover, forcing lenders to use more of their own capital for the loans to weaken the demand of ‘buy to let’ investors. This ‘lockdown of buy-to-let mortgages has the consequence of severely shortening demand for the major developers and housebuilders, leaving Build to Rent as one of the only viable investment alternatives.
Conclusion
In the evolution of the UK property industry, from the Private Rented Sector to Homeownership and back to Private Rented Sector, investors focus on new housing concepts. Staying ahead of the ever changing & growing industry maximises the productivity, efficiency, and quality of the sector. In light of the increasing demand for rentable housing, Build to Rent looks to be the next frontier to help positively improve the current state of affairs. Build to Rent is evident in the massive funding and support it enjoys from both the public and private sectors.
If you’re looking for a more comprehensive understanding on all areas of the UK Build to Rent market, check out our BTR Guides. Here, you will find our complete guide which covers in depth, all of the topics on this website in far more detail. It is available for purchase as a whole, or individual sections if you prefer to focus on one area.
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