Can build to rent become the mainstream by 2025?
Kim Vernau (pictured) is chief executive of BLP Insurance
Against the backdrop of the UK’s housing shortage, build to rent is increasingly being recognised as an essential part of the provision of a strong housing market.
However, while the sector has come a long way in a short period of time, there are still a number of challenges inhibiting its growth, namely political instability and investment, which need to be overcome.
Uncertainty arising from ongoing Brexit negotiations is threatening to hinder build to rent investment, despite the advantages of the tenure over other UK property in the same boat.
Changes to Capital Gains Tax (CGT) for non-UK investors, could see investment in commercial developments slow down even more dramatically.
However, opportunities for investors still remain; non-UK institutions who don’t hedge their currency could sense an attractive opportunity to invest in build to rent, while those seeking a stable, long-term, bond-like return on investment can invest in the PRS housing debt guarantee scheme, without the exposure to residential property risk.
On the other end of the spectrum, investors with a more opportunistic outlook will take on the risk associated with planning, development and letting-out to get these schemes up and running.
Last year’s Autumn Budget, while acknowledging private rental as a key tenure, fell short of industry expectations in terms of government measures to support build to rent.
Despite Prime Minister Theresa May’s commitment to increase housing supply by building 300,000 houses a year for the next five years, build to rent was not a focus area for government action, overridden by its ongoing obsession with measures to promote homeownership.
However, while homeownership is seemingly starting to tail-off, rising interest rates and a faltering economy would indicate that private rental is more likely to accelerate than decelerate in a broad economic sense.
Pushing past Brexit concerns and gaining stronger government support will help the build to rent sector thrive. Despite Brexit and the measures introduced by the Budget, the UK still has a growing population and tenant demand for private rental properties will only continue to grow.
According to latest figures from the British Property Federation, 105,214 build to rent units have either been completed or are planned in the UK to date, and there’s no doubt that this figure is set to increase.
Build to rent might not be a mainstream property class just yet, but it’s increasingly accepted that this may well be the case in the next five to 10 years, which will prove invaluable to the acceleration of the industry.