The rise of build-to-rent blocks of housing is changing the face of the private rental sector. In large cities like London, private landlords are being slowly edged out by corporate landlords promising long-term rentals and professionally managed tenancies.
Flashy build-to-rent apartment blocks with communal living areas, secure parking, gyms, and social activities are designed to attract young professionals and above-average income. Large housing associations like Grainger and London & Quadrant are switching from a social housing model to build-to-rent. Returns on investment are modest – typically around 3.9% – but returns are stable and investor demand is increasing.
Overseas Investment in Institutional Build-to-Rent Developments
Build to rent is a relatively new phenomenon, but it is one that is growing fast. There are an estimated 132,000 build-to-rent homes currently in development. Research carried out by Knight Frank estimates that the sector will have benefitted from around £75bn by 2025. Only 24% of institutional investment capital comes from UK investors; the rest originates from overseas, with 33% from the US, 14% Canada, and 15% Asia/Pacific.
Are Tenants Happy?
Not always, it seems. Whilst the glossy brochures and marketing spiel suggest build-to-rent housing projects are a tenant’s dream come true, the reality doesn’t always measure up. One of the main selling points of housing developments like East Village in Stratford is that rents remain stable. However, tenants are reporting that rents are rising above the rate of inflation.
London rents are fairly stagnant, with a small 0.2% increase in the last 12 months, but L&Q pushed up rents by 4%. In addition, many tenants have experienced problems, broken locks on bike sheds and car garages, which were not fixed for ages, leading to thefts and criminal damage.
At another build-to-rent site in Wembley, numerous tenants complained that the landlord, Tipi, was letting out vacant properties via Airbnb, which was causing all kinds of problems for residents. Tipi has since concluded that the Airbnb initiative wasn’t working and is phasing it out.
“We concluded that these short-term lets are not compatible with residents. The interests of our Tipi residents are our absolute priority.”
Private Landlords are More Accommodating
The Financial Times conducted a snap poll of its readers and found that 75% of those who responded had experienced problems with their corporate landlord. Issues included everything from damp to vermin infestations. One renter concluded:
“I won’t ever rent from a large company again. Individual private landlords have been infinitely better and more accommodating.”
Given the number of issues faced by build-to-rent tenants, it seems that private landlords might not have to worry just yet.