Build-to-Rent: Playing the Generation Game
They call us Generation Rent. As the latest entrants to the housing markets, my generation can expect to own a home only if one plays ‘a blinder’. The Resolution Foundation now estimates that in a decade, 90% of under-35s on modest incomes will be renting for life.
That sinking feeling you just felt is part of a long-term trend. UK home ownership peaked in 2001 at 69%, and has been sinking ever since. Meanwhile, the rental sector has grown around 5% a year since in the same period. It now accounts for over 19% of households’ occupation choice and is only set to go one way.
While renting is nothing new, imminent increases in stamp duty on second homes will hit the Buy-To-Let sector, the long-favoured resting place of your Mum and Dad’s life savings. As the April 1st duty rise looms, a gap has already emerged across the middle of the rental market.
Build-To-Rent (BTR) has rushed in to fill this gap, making it the fastest growing property sector in the UK today. The British Property Federation data shows that there are over 30,000 BTR units with planning permission in the UK, representing a 47% rise in just three months. Knight Frank estimate that by 2020 British BTR will be worth £50 billion.
Who is behind this momentum? Savvy insurance companies, large-cap business and pension funds is who, all with cash reserves and shareholders with a long view. Like looking for the perfect partner, these commercial giants are always on the lookout for a reliable long-term investment (with GSOH). Where else are you going to find a stable, low-risk 4% annual return for the next twenty years? Chinese bonds? Oil? Shares in Sports Direct?
The ‘tuning in’ of institutional investment has provided the crucial boost to turn BTR from an embryonic niche to one of the year’s big industry stories. A key part of the BTR ‘revolution’ lies in the consumerisation of the renting experience. The current stereotype of renting may conjure up kitchens in a shoddy state, temperamental dishwashers and a garden that hasn’t seen a trowel since Tony Blair was in office.
But the relatively lucrative middle-market, long-term clientele is promoting an about-turn, towards treating renters not as tenants but as customers. In this sense, it is bang on trend with the rise and rise of purpose-built student accommodation. One recently-consented BTR scheme in London boasts on-site concierge, extensive landscaping, roof garden and a family block aimed for renters with children.
This could be an idea whose time has come. Although I will be over 35 in a decade, I will probably still have a modest income. My aspiration for a home of my own may fail. And if so, what would rank as second best? I’ll probably settle for a roof garden. Unfortunately for me, I represent a stable, lucrative medium term cash-flow. I am Generation Rent.