In just 15 years, there are expected to be more people renting than owning homes in the UK.
This widely-believed prediction is based on the demand for affordable ‘built for sale’ properties far outstripping supply. Just over a third of the estimated 300,000 new homes needed across the country are being built each year.
The picture looks pretty dire, and that’s before you consider the Residential Lettings Association’s recent finding that one in four landlords plans to sell at least one rental property in the coming year.
Build to rent looks set to make huge strides in easing the housing shortage and the government looks favourably upon it too.
So much so that in 2012, it announced it would offer up to £10bn of housing debt guarantees to encourage investment in the development of purpose built, professionally-managed rental homes that will improve options and standards for Generation Rent. Its separate Build to Rent fund provides construction loans for build to rent schemes.
But build to rent will only prove a success if developers are given the green light by local authorities to build the homes renters are searching for.
Planners think they know best but they don't - data does!
You’d be forgiven for thinking the role of a planning committee is to ascertain and deliver the kind of housing people are demanding in that area.
It certainly should be.
Instead, planners are letting their egos get the better of them, believing they know best based on experience in other housing sectors and forcing developers to adher to their rigid demands. There is a deep-rooted failure to analyse the rental market data that often suggests they are wrong.
Supply/demand mismatch makes renting unaffordable for many
There is already a problematic supply and demand imbalance in the rental market. In London, just 23 per cent of total rental demand is for two-bedroom flats. Despite this, two-bedroom flats make up nearly half the supply!
The ripple effect is tremendous. It drives up the price of smaller, more in-demand units. One-bedroom flats will cost a renter £51 per square foot, where a two-bedroom flat would cost £30.
Our recent market analysis of a north London postcode just south of regeneration hotspot Wembley Park and its leading build-to-rent scheme, Tipi, revealed strong demand from couples and single professionals.
However, the volume of Movebubble searches for the one-bed flats and studios they favour is far outstripping the relevant listings in almost all local markets.
This supply and demand mismatch is most acute for smaller units. In the last three months, a grand total of zero studios have been listed in Kilburn despite nearly 200 renters hunting for that type of property in the same time period.
Out-of-touch planning rules are failing renters
There’s more to meeting demand than simply counting the number of rental households, then building the same number of rental homes. Renters’ individual needs must be fulfilled for them to be satisfied enough to sign or renew a tenancy agreement.
The solo professional forced to fork out more than they can afford for a property that’s bigger than they require, or move elsewhere, is a solo professional who has been failed. Ditto the growing family stuck in a pokey apartment due to an over supply of studios and an undersupply of five-bedroom homes.
Were planners not so out-of-touch with what demand actually looks like in their area, developers could be more efficient with their rents. The price of renting would fall and there would be fewer homes sitting empty or struggling to attract tenants.
The build to rent model is dependent upon longer term, stable income, rather than the bigger instant ROI of build to sell. These developments are liable to fail if occupancy levels drop, which they’re at risk of doing if the homes on offer are not what renters want.
There's hope for build to rent if the industry changes with the times
Happily, excitement around the build to rent sector is building. Here at Movebubble, we’ve noticed that renters looking for a built to rent home are making an average of three more enquiries through our app than those seeking a traditional let.
This will surely lead to boroughs receiving more planning applications for these kind of developments. Unfortunately, planning departments are not prepared, with many yet to implement specific build to rent housing policies.
London Mayor Sadiq Khan’s supplementary planning guidance on Affordable Housing and Viability acknowledges that build to rent developments differ from traditional build for sale models.
It advises planners that “local policies requiring a range of unit sizes should be applied flexibly to build to rent schemes” to reflect great demand for one- and two-bedroom properties than in the owner-occupied or affordable rented sector.
The Mayor’s paper also states that local authorities should take the “distinct economies” of build to rent into account when considering applications, recognising that potential yields and investment risk can be affected when the number of large units in a scheme is upped.
Build to rent developers could compromise by incorporating some modular design, allowing for the moving about of non-load bearing walls to change, say, a studio and a one-bed into a two-bed, should demand change in the future.
With build to rent still so new, it’s a controversial subject.
What’s clear is that planning decisions taking too long has already slowed down the building of new homes to buy, contributing to the housing crisis. Here’s hoping the often unnecessarily complicated process doesn’t cripple build to rent, too.
Developers need permission to build the homes renters actually want, where they want them, based on cold, hard data - and make renting better for everybody.