Johnny Morris, research director at Countrywide, looks at the burgeoning Build to Rent sector as large investors look to get involved. Will they continue to grow their presence, potentially at the expense of smaller landlords?(Pictured) Johnny Morris, research director at Countrywide
The way the government counts the number of homes built has changed remarkably little over the past 50 years. A new home is still defined as either private or social, a distinction which does not really reflect the realities of tenure today. And as a result there are not any official statistics which count the growing number of homes delivered by Build to Rent investors, a figure which is – by our estimates – at least on par with the number of new homes built by local councils. Countrywide analysis of planning data shows that at the end of 2016 around 2% of private renters had an institution rather than an individual as their landlord.(Pictured) Proportion of private renters with a similar profile to tenants living in Build to Rent (Source: Countrywide Research)Year of growth
2017 is set to be another year of growth for Build to Rent providers, potentially at the expense of some smaller landlords. The growth of Build to Rent has been supported by government policy while smaller landlords have been hit by higher stamp duty alongside an increase in the amount of tax they pay. A slowdown in the housing market across London and the south east has seen developments originally destined for the sales market sold to several large investors with deep pockets and then let out. And at the same time more institutional investors are building homes that are designed for private renters from the very beginning.
It is likely that institutional investors will drive a large chunk of the rental sector’s growth over the next few years. But exactly how big is the market for Build to Rent and how large can it grow? While the sector is still in its infancy, growth so far has come on the back of successfully appealing to a relatively small tenant demographic which tends to be young, childless, and affluent.
But this group of people makes up a small proportion of today’s private rented sector. If Build to Rent providers continue to go for a similar demographic, they have the potential to capture around one in five renters, or 960,000 UK households. Four in 10 of these live in London, with the rest spread across large towns and cities, markets that so far remain relatively untapped.Current trends
On current trends big investors still have plenty of room to grow. Tenant satisfaction tends to be high and the service professional. The number of tenants with an institutional investor as their landlord will carry on rising, potentially at the expense of some smaller landlords. But the number of tenants willing and able to pay for the existing proposition is finite. There will come a point in the future where institutional investors will have to diversify their offering if they’re serious about making big inroads into the private rented sector. While such a diversification has the potential to drive up standards for more private renters, it is likely to require a degree of government subsidy and support.