The build-to-rent sector is a market typically seen as one that provides expensive urban flats for young adults, but it is facing a significant shift following a strong increase in the number of suburban families entering the market in 2021.
According to a 2021 UK Rental Market Report by Zoopla, the year saw demand for suburban rental homes rise by 43% based on a five-year average, making the sector an important part of UK housing delivery today. This comes as home ownership becomes increasingly out of reach for young people – an issue that has been exacerbated in recent months by the cost-of-living crisis.
By October 2021, the average property price was £24,000 more than it was in October 2020. In a Nationwide Building Society survey carried out in April 2022, it was revealed that 70% of prospective first-time buyers who are harbouring ambitions to buy in the next five years have delayed their plans by an average of almost two years due to the cost challenges of saving for a deposit. What’s more, firs-time buyers and many existing homeowners looking to re-mortgage will find that new mortgage deals are going to be more expensive following the recent decision by the Bank of England to hike interest rates to 1%.
Homeowners currently tied to fixed-rate deals will be sheltered from these rises, but many young families are now facing having to give up on the idea of home ownership altogether. As a result, these factors have created a growing opportunity for the build-to-rent sector.
Current BTR market trends
The build-to-rent market has been around for more than a decade, but it has been relatively slow to really get going. However, there are signs that this is changing, with Zoopla’s quarterly report published in February 2021 showing that that single-family houses rented 30% faster during the last quarter of 2020 compared to the previous year. And further research from a quarterly build-to-rent report produced by the British Property Federation and Savills found that the sector has grown by 14% between Q1 2021 and Q1 2022. This figure includes both the amount of completed BTR developments and those in planning and construction stages.
The sector has grown by 4% across all UK countries from as recently as Q4 2021, and this trend looks set to continue as the sector proves resilient in adverse market conditions. What’s more, investors are beginning to turn their attention to single family housing schemes following the disruption in the buy-to-let market resulting from the tax and regulatory changes introduced last year. This move is proving beneficial, not only to move away from said regulatory changes targeted at buy-to-let investors, but it also presents an opportunity to diversify PRS portfolios, as well as capitalising on a significantly growing market. The only obstacle that may prevent continued growth is a lack of available land at sites primed and ready to be developed.
BTR and the pandemic
The role of the pandemic in the rise in suburban rental demand cannot be understated. Indeed, it was a driving force behind the desire for bigger, greener and quieter living spaces and the hybrid working model that many have now adopted on a permanent basis.
As demand skyrocketed in wider commuter zones, the disparity widened between inner and outer city residential rents. a report on London rentals published by Hamptons in December 2021 found that inner London rents had been on the decline for the last 21 consecutive months, falling to its lowest rate in April 2021 where prices were 22.1% lower than April 2020.
And despite inner city rents catching up with outer city rates in Q4 2021 as people returned to work and global travel reopened, rents outside London have risen by 16.1% while rent growth across Greater London increased by 5.9%. this shift indicates a clear change in where demand lies, boosting rents in the suburbs at the expense of demand for city living.
Looking ahead, to Europe
With flexible working set to become a permanent fixture, combined with the current financial pressures, this surge in demand for suburban rental property is unlikely to waver any time soon. As a result, growth to over £200bn is forecast for the build-to-rent sector as an investment market, leading many developers to begin looking towards modern methods of construction (MMC) as a means of increasing speed and productivity.
And while Brits have traditionally placed strong emphasis on ‘getting on the property ladder’ this new demand shows that attitudes are changing – and this isn’t necessarily something we should fret over. Indeed, if we look at some of our European neighbours, namely Germany, 60% of the population live in rented accommodation. It is only since Margaret Thatcher’s relief on buying homes that we have placed such gravitas on owning property, but the cost associated with buying a home means that it is now an unrealistic ambition for many.
So, while the housing crises remains one of the biggest challenge this country currently faces, a far more affordable option comes in the shape of the family rental market, and this also presents an ideal opportunity for investors.