The role of build to rent in London’s housing market
In the December edition of the NxNE newsletter in partnership with Belgrave Communications, we discuss build to rent and its effect on the London Housing Market. You can view the full newsletter, which covers development news throughout London's North and Northeast boroughs.
According to the Office for National Statistics, the population of Greater London is projected to grow by 12.7% over the next 8 years. By 2025, the population of the Capital is predicted to reach 9.8 million people, a growth rate which is almost twice the rate of the UK as a whole.
While bringing benefits to the London and UK economy, the continued population increase is placing huge demands on London’s housing market, pricing most of the capital’s workforce out of being able to buy or even rent their own properties. Clearly, a situation which needs remedying, but one that is complex in its solution and for which there is no ‘quick fix.’
Even the term affordable housing is controversial, with the London Mayor, Sadiq Khan recognising in his publication ‘Homes for Londoners: Affordable Homes Programme 2016-2021’, that affordable rents, i.e. 80% below market value, are still not genuinely affordable in many areas of London, leading Khan to introduce the London Living Rent which guides rents at substantially below this level.
With £3.15 billion secured from the government, Khan’s plans for supporting the housing of low and middle-income families include the delivery of 58,500 homes through a combination of London Living Rent and shared ownership and a further 31,500 affordable homes.
Build to rent is being seen as part of a mixed strategy to provide quality, long-term affordable housing stock for London’s growing population. In this article, we discuss the reasons for this appetite for build to rent and why it has advantages for London.
Changing Rental Perceptions
There is a realisation that alongside the British desire to become home owners, there is a growing number of people for whom renting is a lifestyle choice. However, with that choice comes a demand for higher quality, often professionally managed accommodation, offering communal facilities and a more versatile approach to tenancy agreements.
Currently, the PRS market is dominated by small-scale private landlords who may only own a handful of properties. While the vast majority are reputable, some may not be, and this is a concern for tenants. The idea of moving into a high quality, professionally let and managed property on a longer-term tenancy is very appealing. The number of people living in PRS accommodation in London is predicted to overtake those in owner occupation for the first time since the 1960s (Source: Housing in London: 2017, GLA).
As prices in London continue to rise when compared to wages, with rents increasing by 45% in 10 years compared to an earnings growth of 25% according to the latest research by Hometrack, the rental market is certain to grow, and the rental demographic will continue to broaden but there must be a varied offering to meet the needs of all Londoners.
The changing policy position with regard to build to rent developments in London is encouraging large-scale investors to enter the market. Large pension funds and property companies are increasingly attracted to PRS as they offer stable, high-quality investments that deliver long-term returns. Legal and General’s Build to Rent Fund has proved an attractive investment with schemes now underway in Bristol, Salford and Walthamstow, aiming to use institutional funding to provide high-quality rental stock which meets the needs of today’s renters.
Build to rent schemes are also appealing to local authorities as they can potentially provide a reliable, long-term income stream with scope for joint ventures and shared rental income.
According to London First’s report into Build to Rent over recent years, slightly over 10,000 purpose built build to rent homes have been completed, close to 9,500 homes are under construction and approximately 27,500 homes have planning permission.
An Attractive Proposition
There are several reasons why public policy is backing the growth of build to rent. According to London First’s report into Build to Rent, this type of development offers a range of benefits including:
- Increasing the overall supply and accelerating the construction of new homes
- Supporting greater choice for tenants in the rental market
- Delivering a better quality of rental product that is professionally managed
- Providing boroughs with an opportunity to generate a long-term income stream to invest in local priorities
- Helping to deliver large-scale developments at pace
- Driving regeneration
- Providing stability and certainty for tenants
- Offering professional management services
- Long term investment and stewardship in an area
- Social integration
Blackhorse Mills – Walthamstow
Plans are well underway for the development of 440 new homes on a former industrial estate, close to Blackhorse Road station in Walthamstow. Legal and General’s major mixed-use build to rent scheme was approved by the planning committee of Waltham Forest Council in October 2016, and the company broke ground at the site last month.
When completed it will provide the borough with approximately 440 new Studio, 1, 2 and 3-bedroom homes.
Wembley Park – Brent
In August 2017, the housing minister Alok Sharma announced that the Government would provide £65 million to the biggest development of homes built specifically for private rent in the UK.
The site at Wembley Park will provide 7,600 new high-quality homes in what is being described as one of the largest strategic regeneration projects in the UK. At least 6,800 of the properties will be for rent.
The Collective – Stratford
An example of a ‘co-living’ development, The Collective is designed to meet the needs and lifestyles of young people living in London. The 18800 sqm development in Stratford is designed to offer co-living units as well as co-working spaces, a cultural venue as well as amenities and outdoor space.
Fizzy Living – Walthamstow
Located on Blackhorse Road in Walthamstow, the Fizzy Living development has been set up to provide quality rental homes in this thriving area of London. Owned and managed directly by Fizzy, renters deal directly with the company and can enjoy tenancy agreements as long as five years. For those who are interested, a 2 bedroom, 2 bathroom furnished apartment would cost from £1805 per month.
With London’s population growth set to continue, BTR schemes are certainly here to stay and will play an essential role in ensuring the future prosperity of London by delivering quality long terms accommodation for Londoners.