The Daily Telegraph - Saturday - Money
The next big challenge facing buy-to-let landlords
‘Build-torent does the same job as buyto-let but better and many landlords will be pushed out’
The pandemic has hammered landlords financially while they grapple with punitive tax changes and prepare for further costly legislation. But there is another threat on the horizon: the rise of build-to-rent.
The number of purpose-built, professionally managed rental homes is due to increase by 240pc in the next few years. As of September 2020, there were 50,821 build- to- rent homes in Britain, according to the British Property Federation, an industry body. A further 36,701 were under construction, while 84,292 were in planning.
Simon Scott of Flatfair, a rental tech company, said the total “could double or quadruple” in the next two years.
This is because unlike small-scale landlords, the build- to- rent sector is backed by massive institutional investors such as pension funds, which see it as a stable source of revenue.
Knight Frank estate agents estimated that a total of £41bn had so far been invested in professionally managed rental homes in Britain – up 17pc from £35bn in 2019. A further £19bn will be spent on schemes that have been granted planning permission.
Adam Challis, of JLL property advisers, said: “The bigger structural change for buy-to-let is the growth of build-torent. It does the same job but better and many landlords will be pushed out.”
Coronavirus has accelerated the trend. “Build-to-rent starts, like all construction, were negatively impacted by the pandemic, but they were more resilient, relative to the sales market,” said Mr Challis. “There is more investor demand for build-to-rent so developers’ returns are better.”
The sector now accounts for nearly a quarter of new building, said Mr Challis. “It didn’t exist 10 years ago.”
Knight Frank estimated that once the planned developments were completed, build- to- rent would account for 2pc of British rental dwellings. The overall share is small, but it is concentrated in the parts of the country where private landlords have been hit hardest by the pandemic.
London accounts for nearly half of the total build-to-rent homes, at 76,804. The areas with the most completed properties in the capital are Newham, Tower Hamlets, Ealing and Brent, according to Knight Frank.
Outside London, the boom is in regional cities. Together, Manchester, Salford, Birmingham, Liverpool and Leeds account for 35pc of build-to-rent completions so far, Knight Frank said.
Schemes are also getting bigger, as investors want to build at scale. The average number of units in buildings under construction is 264, according to Knight Frank. This is a 20pc jump compared with the average of 212 in schemes that have already been built.
Build-to-rent properties are typically more expensive than standard rentals, but they offer perks such as gyms and meeting rooms. Smaller private landlords will struggle to compete with the service offerings, said Mr Scott.
A survey by the National Residential Landlords Association, a trade body, found that 56pc of landlords had lost income due to the pandemic. For one in eight, the hit was more than a fifth of their income.
Mandy St John Davey, a landlord with about 30 properties, said: “Landlords are so pressured, the margins are so tight. They cannot sustain having someone living in their properties for free, but build-to-rent with institutional investors perhaps can.”
Investment is concentrated in citycentre flats for professionals, rather than in family homes. “I don’t think build-to-rent will cater to families, and I don’t think it will be homes with gardens,” added Mr Scott. “But landlords catering to young professionals and overseas students will be affected.”