Build It And They Will Come: The Case For The Private Rented Sector
The private rented sector was long viewed with suspicion, but fears of unkempt apartments and shady landlords have given way to a more balanced (and accurate) view that build-to-rent, and PRS in particular, has a vital role to play supplying homes for people in central London.
Approximately 59,000 residential units are under construction in London, and about 15% of those will be rentals, according to data from residential research consultants Molior. About 5,500 residential units sold in the first quarter of the year and 14% were PRS units, down from 26% in 2015 — but most people agree that 2015 was an extraordinary year.
Almost 70% of the PRS units are within the Inner London boroughs, with a particular emphasis to the East. Newham, Southwark and Tower Hamlets have been the primary focus of activity and contain over 80% of the Inner London stock. Tenants want to live reasonably close to work and social opportunities, Dukelease managing director Paul Cook said.
While consumer demand is undeniably strong, the biggest challenge is knowing the market, Cook said.
“We are making a great deal of assumptions right now.”
That includes the demographic that wants to live in purpose-built rented accommodation. Cook believes university graduates and young professionals will make up the lion’s share of tenants, but the market is trying to figure out if people still have a desire to own a home or if they will embrace renting long term.
The facts look encouraging for PRS developers. For the first time, more adults are renting than owning their homes. And the schemes are different than anything London has seen before in that it is entirely market-driven, versus state-driven.
“Renting isn’t new,” Cook said. “But the scale is new.”
Cook said the government’s housing goal of 200,000 homes per year for the country is just about doable if the public sector gets involved.
There is a paucity of development opportunities, but motivated investors are getting around that. One interesting trend emerging is developers selling units within their schemes to PRS investors and developers. Fizzy Living recently bought 111 flats within Taylor Wimpey’s 500-unit development in Walthamstow, which is due to complete in July 2017.
Slow-moving local councils can be a another constraint to the segment. Cook said he always views local authorities are partners.
“It would be stupid to view them as anything else,” he said.
In the February 2017 housing white paper, the government said authorities should plan proactively for build-to-rent where there is a need and to make it easier for build-to-rent developers to offer affordable private rental homes instead of other types of affordable housing.
While those proposals may be taken to heart, it will take time for them to filter down to the market. In the meantime, build-to-rent and private rented-sector developers will continue to rely on their wits to acquire development sites.
Join Paul Cook and other industry experts at Bisnow's London PRS Growth & Expansion 2017 event on May 18. Tickets are available here.