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What is build-to-rent and how does it work?

The build-to-rent (BTR) sector has been emerging for several years, but despite its huge growth in the last few years, it’s still a relatively novel concept in comparison to other property markets.

What is build-to-rent?

Build-to-rent is a type of property development aimed solely toward the rental market, not long-term house ownership. Developers will either convert an existing property or build a new one exclusively to rent to tenants.

Although the BTR market is on the increase with billions of pounds invested in the last year, it was introduced back in 2012, as part of the Olympic legacy initiative and the redevelopment of Stratford’s East Village from athlete housing to private rentals.

Similar huge developments followed, and thousands of new rental properties were developed, many with government backing of the Home Building Fund.

The rise of renting

Renting is on the rise and with current housing trends increasingly pointing towards build-to-rent, especially within London, there is evidence that a new surge of BTR developments will emerge in the coming years.

There are many reasons why more people are renting, such as a change in how people feel about renting, a lack of affordable homes for sale, or an improvement in the quality of rentals for people who work temporary jobs.

But no matter the reason, developers are more than willing to build purpose-built rental homes to keep up with the growing demand of this expanding market.

Stephen Clark from Finbri, a Bridge To Let finance broker, says, “With investment in BTRs increasing by 50% in just one year, the growth, and indeed possibility for investors within this sector is huge. As of Q1 2022, 225,000 BTR homes were either delivered or planned, creating much-needed accommodation for individuals and families. With the possibility to create such a vast number of homes within this sector, property developers investing in BTR projects would certainly be helping to ease the current shortages in the rental market.”

What makes build-to-rent different?

Intuitively, developers are making BTR sites accommodate the lifestyles of people who would like to rent instead of buy. This is so they can attract people who are interested in long-term renting and the benefits that BTRs can bring.

Of course, the properties themselves would need to meet modern living standards and may need to go above and beyond to justify the increase in rents for these types of properties.

But in many places, BTR developments are going one step further than just making great apartments. Developers are now trying to create small communities inside their developments by adding things like various communal areas where the tenants can socialise with others who live in the same complex. These include things such as communal lounges, dining rooms, health and wellbeing facilities, and even gyms, which are attracting many younger individuals to a build-to-rent development.

what are the advantages of BTR?

Aside from the addition of communal areas and gyms as mentioned above, BTR has other advantages which aren’t only for the tenants. Local communities can benefit in a surprising number of ways from these advances.

For example, Legal & General began work in 2017, redeveloping a dilapidated section of E17 and transforming it into 479 new rental homes with 2,000 square metres of communal space. The development was backed by an institutional investment fund to enhance Walthamstow Wetlands which enabled the plantation of 200 new trees.

Of course, the are those that are opposed to such large-scale constructions on their doorstep, and some argue that this is not the way to handle the current property crisis. However, people require better housing, and tenants who are tired of living in fear of eviction due to no fault of their own would embrace the long-term stability.

One of the main issues with renting a build-to-rent property is its affordability. The benefits that come with a BTR, come at a cost, a cost that is often beyond the means of many potential residents.

Do BTR developers need to provide affordable housing?

According to the government’s guidelines, all BTR developments should set aside 20% of the site for affordable housing, however, local governments can contest this with a valid justification for the reduction.

Albeit, the phrase “affordable housing” is fairly subjective. According to Government instructions on the subject, affordable private rent is defined as a “20% reduction on private market rent,” which is likely to be a figure established by the developers themselves.

While this rental price must conform to rules stipulated by the Royal Institute of Chartered Surveyors,” a 20% reduction on exceptionally expensive rental rates is still likely to be out of reach for many tenants, including key workers such as nurses and teachers.

Can build-to-rent properties be sold?

As build-to-rent houses are very new, this is still a bit of a grey area.

The minimum period set out in Section 106 legal agreement (typically 15 years) has not yet passed, so only time will tell if these homes are mass-sold in the future. It’s doubtful, but not impossible, assuming they continue to generate rental income for the developers.


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