Build-to-rent prom­ises an end to ten­ants’ hor­ror sto­ries

As in­vestors pile in, renters fi­nally have an al­ter­na­tive to tra­di­tional land­lords, writes Jack Tor­rance

The Sunday Telegraph - Money & Business - - Business -

Ev­ery­body who has lived in a few flats owned by buy-to-let land­lords has a hor­ror story. For some it will be the bro­ken boiler that left them shiv­er­ing un­der cold show­ers for weeks on end, while oth­ers will com­plain of hav­ing hun­dreds of pounds knocked off their de­posit for fail­ing to dust a shelf when they moved out.

In the days of yore this would have been a tem­po­rary prob­lem to be laughed off af­ter the hard-pressed ten­ants fi­nally saved up the cash to buy their own place. But as many of to­day’s 20 and 30-some­things face up to the fact they are likely to spend a ma­jor­ity of their lives in some­body else’s house, they are be­gin­ning to won­der if there may be a bet­ter op­tion.

Bri­tain’s bur­geon­ing build-to-rent in­dus­try hopes it can be at least part of the an­swer. Its ba­sic premise is that by build­ing flats on a large scale and then let­ting them out rather than sell­ing them on a piece­meal ba­sis, cor­po­rate land­lords can af­ford to pro­vide a bet­ter ser­vice than your typ­i­cal buy-to-let­ter.

At the same time, it gives pa­tient in­sti­tu­tional in­vestors, many of them pen­sion funds, the op­por­tu­nity to put some of their cash into res­i­den­tial prop­erty with­out the risk that comes with build­ing houses in the hope of flip­ping them for a quick profit.

It is a model com­mon in other coun­tries in­clud­ing the US but has only re­cently started to take off in the UK. The sec­tor’s trail­blaz­ers in­clude Get Liv­ing, with back­ers such as the Dutch pen­sion fund APG, which has con­verted the ath­letes’ vil­lage at Lon­don’s Olympic Park into flats, and Quin­tain, which is owned by US pri­vate eq­uity firm Lone Star and is build­ing homes on a mas­sive swathe of land sur­round­ing Wem­b­ley sta­dium.

UK in­vest­ment firms in­clud­ing Le­gal & Gen­eral and Pru­den­tial-owned M&G have be­come in­volved in re­cent years, with plans to build thou­sands of their own flats. Dan Bat­ter­ton, who heads L&G’S build-to-rent oper­a­tion, says it is an at­trac­tive model be­cause it of­fers a steady stream of in­come.

“What we want from our rent is ide­ally for it to go up with in­fla­tion, be­cause our pen­sion fund in­vestors are try­ing to achieve in­come that grows with in­fla­tion,” he says.

And un­like other parts of the mar­ket, it should be fairly re­silient in the event of a down­turn, he sug­gests. “In an eco­nomic cri­sis peo­ple may not be able to af­ford a mort­gage or a de­posit, but they still need to live somewhere.”

In­vestors are clearly be­ing won over. Though the sec­tor is grow­ing from a very small base, the num­ber of com­pleted homes rock­eted by 45pc year-on-year to around 21,000 by the end of March, while al­most 100,000 more are un­der con­struc­tion or on the draw­ing board, ac­cord­ing to the Bri­tish Prop­erty Fed­er­a­tion. While the in­vest­ment case may seem at­trac­tive, part of the chal­lenge now is con­vinc­ing ten­ants they can pro­vide a life­style bet­ter than they could at­tain by buy­ing.

Devel­op­ers use their scale to of­fer perks like free broad­band, as well as more ex­trav­a­gant ones such as mem­ber­ship of car clubs, on-site gyms and swim­ming pools. There is also a fo­cus on com­mu­nity: M&G’S res­i­dents are treated to monthly com­mu­nal break­fasts and run­ning clubs.

The schemes are al­most all big, mod­ern apart­ment blocks based in city cen­tres that are likely to appeal to young pro­fes­sion­als, though Bat­ter­ton says L&G’S ten­ants are sur­pris­ingly di­verse: “We’ve got 18-year-olds and 70-year-olds liv­ing in the same build­ing, we’ve got peo­ple with ba­bies and peo­ple with grand­kids.” Rents are not ex­actly cheap – L&G’S the Slate Yard block in the cen­tre of Manch­ester charges £1,300 a month for a two-bed flat. But Bat­ter­ton says they at­tract peo­ple on a range of in­comes, in­clud­ing “peo­ple be­low the av­er­age wage”.

“There isn’t a stereo­typ­i­cal build-torent renter,” adds Si­mon Chat­field, who runs Be Liv­ing, a build-to-rent op­er­a­tor with two schemes of 300 flats in Lon­don. “It could be a chef, a bar­ris­ter, or any­thing in be­tween re­ally.”

Af­ter years of ne­glect the sec­tor has re­ceived the back­ing of cen­tral gov­ern­ment with its in­clu­sion in the na­tional plan­ning pol­icy frame­work last year, but devel­op­ers say they are still strug­gling to win over lo­cal coun­cils. There are also ques­tions over whether the model can work for a broader range of prop­er­ties. Some devel­op­ers, such as Sigma, have gone down the route of build­ing hous­ing es­tates but for now the vast ma­jor­ity of build-to-rent homes are pricey city cen­tre apart­ments.

“You’ve got a lot of devel­op­ers and in­vestors fo­cus­ing on pro­duc­ing and de­liv­er­ing build-to-rent homes that are tar­geted at a very af­flu­ent part of the mar­ket,” says Lawrence Bowles, a re­search an­a­lyst at Sav­ills, who warns there are only so many po­ten­tial renters who fall into that bracket.

And while rent­ing prop­er­ties out might seem like a safe al­ter­na­tive to build­ing homes for sale, it is not a li­cence to print money. Quin­tain boss An­gus Dodd warns those who pro­vide a poor ser­vice could strug­gle to keep their homes oc­cu­pied. And if the build­ings them­selves are not con­structed with care then they might not be able to pull in cash for as long as in­vestors hope.

There is also the prospect of tighter con­trols on rents should a Jeremy Cor­byn-led Labour Party come to power. But there is none the less a great deal of op­ti­mism in the sec­tor.

Jonathon Ivory, who runs the UK arm of US de­vel­oper At­las Res­i­den­tial, be­lieves build-to-rent will “change the face of real es­tate in the UK” and be­come the “go-to choice for land own­ers, devel­op­ers and res­i­dents”.

“In the US even if you have 20,000 units you’re just be­gin­ning to get to scale,” adds Quin­tain’s Dodd. “No­body in the UK even has a pipe­line over 10,000. There’s clearly an op­por­tu­nity for one or two dom­i­nant play­ers to emerge.”

The for­mer Lon­don 2012 Olympic vil­lage has at­tracted new apart­ment de­vel­op­ments

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