Could the build-to-rent model solve our housing woes?

As the UK Government introduces bold new plans to fix its “broken housing market”, the growing build-to-rent model can bring forward new supply, provide a better product for renters and attract considerable investment.

In the UK the proportion of people living in private rented homes has doubled since 2000. The average couple in private rental accommodation pay their landlord roughly half their salary each month, while 2.2 million working households with below average incomes spend more than a third on housing.

Pre-Brexit, the Cameron Government set a target to build one million homes by 2020. However, economic uncertainty has put this target in jeopardy. While 190,000 homes were completed in 2016, more than 275,000 must be built each year to meet demand.

In February, the UK Government released Fixing our broken housing market, a white paper which sets out a broad range of reforms to increase the supply of new homes. Among the raft of measures, planning rules will be amended so councils can plan more long-term build-to-rent homes.

Property Council chief executive Ken Morrison says the build-to-rent model is being viewed as a new asset class and potentially a large source of new supply, with important lessons for Australia.

Build-to-rent apartments currently make up just two per cent of the private rental sector in the UK, which predominantly consists of small-scale landlords. Consequently, the build-to-rent asset class is undeveloped – but with “enormous potential” Morrison says.

“Instead of a large development being sold to individual owners, the asset is maintained under single ownership, which attracts institutional investment looking for steady returns,” Morrison explains.

“Because there is a largely untapped institutional demand for assets that deliver this return profile, getting the model right can deliver more much-needed housing supply to the marketplace.”

Build-to-rent presents several advantages for tenants too, because each development is designed specifically for renters. This may include concierge and onsite maintenance services, long leases and rent increases pegged to inflation.

The British Property Federation (BPF) has found that the build-to-rent model could help to deliver 240,000 new properties by 2030. And building rental accommodation on prime urban sites close to key transport hubs could result in three times the current level of residential construction, the report found.

Unlocking the benefits and potential of build to rent, developed in partnership with Savills and the London School of Economics, has found that the build to rent model can be a ‘de-risking’ strategy for developers and investors, while accelerating the construction of new dwellings and underpinning urban regeneration.

“Many of the public policy issues in the UK are similar to those in Australia – and the government has recognised that increasing housing supply is the solution,” Morrison explains.

Meanwhile, Australia’s housing market continues to record a mismatch between supply and demand, with the Australian Bureau of Statistics’ latest building approvals, released last week, revealing a 17 percent drop in seasonally adjusted approvals since July 2016.

Morrison says the Property Council is currently exploring the range of incentives that could support affordable housing, including build-to-rent, and a research paper will be released in the coming months.

“We know federal and state governments are looking closely at housing affordability. Fostering a build-to-rent asset class could be an important piece of the housing puzzle.”