The UK is experimenting with a relatively new housing scheme to meet the increasing demand for residence. Build to Rent promises a shift in current developer trends, taking over the domination of individual private landlords. This article will explore how Build to Rent is overtaking private rentals in the housing sector & the threat posed to private landlords.
Build to Rent
Within a BTR development, an investor capitalises the entire building and leases apartments to individual tenants. This is in contrast to the typical open sales market, where the developer sells on each individual apartment to private landlords.
Increasing demand for affordable homes (as the population grows) has accelerated the construction of developments in the past. According to the Urban Land Institute (ULI) UK, the Residential Council’s primary focus is affordable Build to Rent developments. They also state that almost 19,000 new houses are offered for rent every month by the private sector. This translates to nearly 10% growth in renting annually.
Threats to Private Landlords
Demand for Green
As the demand for renting increases, the BTR strategy is being adopted more readily by the policymakers. This method has proved to be more efficient in construction and more appealing to tenants. According to ULI, tenants now demand healthier and greener options in the property industry. Using eco-friendly alternatives increases efficiency in construction by reducing the carbon footprint. Millennials and the younger generation are more likely to demand environmentally responsible features in their houses and flats. The fierce competition in the private housing sector encourages developers to keep their target customer’s demands in mind. With proper planning, this 25-year investment can improve the construction and housing sector of the country.
Furthermore, a ULI roundtable from 2019, concluded that BTR and eco-friendliness are inter-related. Build to Rent deliberately includes welfare into its scheme, instead of it being a by-product. The pressure on Build to Rent developers to deliver eco-friendly properties have increased. Young tenants’ concern for ethical correctness in their consumption has encouraged BTR developers to ensure no gap for amoral ways. The focus to satisfy tenants’ demands results in investors looking to finance sites that offer better and healthier facilities.
Build to Rent Offers More
Only 10% of private landlords are companies. The remaining 90% are owned by individuals. They use the property to rent out or as a buy-to-let mortgage finance. This landlords’ sole focus is to generate income by leasing a private apartment. Nearby surroundings, amenities, and facilities are not within their control.
Awareness of the services & facilities offered within BTR schemes continues to increase & rent rates remain competitive. Private landlords may have to reduce rates to entice tenants in areas where demand is low. Why pay the same for less?
Build to Rent Puts Tenants First – Intentionally
Many properties owned by private landlords were built without the intention of the homes being leased. Therefore, they have not been designed with tenants in mind & are not easily adaptable.
Build to Rent on the other hand, designs and constructs its entire scheme in accordance with consumer needs. Therefore, BTR is ready to offer appropriate efficiencies & amenities, as well as a dedicated management team. Communications between management and tenants is far higher in Build to Rent than in the case of private landlords. BTR has onsite maintenance teams that resolve issues within hours opposed to days (sometimes weeks) as is often the case with private landlords.
Increased Periods of Rent & Security
Another issue that BTR resolves, is that of private landlords offering short term leases that in turn, cause uncertainty. Private landlords have the power to evict the Tenant at a relatively short notice. According to Homeowners Alliance, one in six tenants has a short-term tenancy (shorter than 3 years). Build to Rent offers comparatively longer tenancies. Attracting the growing number of people who can afford to rent but not to buy and are seeking the level of security that a home should offer.
Secondly, Build to Rent has a specified rate of rent set by market forces. This allows them to enjoy the certainty of stable rent. Whereas, tenants living under private landlords have to deal with the expectancy of unfairly rising rent. One in six renters complains that their rent has increased with time. In addition to this, one in three tenants face high upfront charges in the basic single landlord within a block model.
Conclusion
One edge that private landlords still have, is setting rent levels below the market price to attract tenants because they are only looking to cover the mortgage on the property.
Build to Rent on the other hand needs to charge a premium to reach their investment payback period as soon as possible.
But, As the Build to Rent model gains popularity, the demand for private landlords’ property could fall. Given all the benefits that Build to Rent offers, tenants are more likely to gravitate towards the plan that offers them the most value, comfort & security.
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