Build to rent homes

What is build to rent (BTR)?

Build to rent refers to the sector in the housing market involving large scale developments built mainly for the purpose of being used by private renters.

The scheme, which closed in 2016, was launched by the government in 2012 and provided loans to cover up to 50% of eligible development costs. 

The initiative was a response to a rise in housing developments being bought as an investment and left empty or sold on for a profit.

The effect of this has seen rents rise significantly across the UK, especially in the capital. With properties being left empty and communities being priced out of their own homes, access to affordable housing has become increasingly difficult.

Build to rent aimed to address this issue by building housing developments designed only for people who plan to rent. The intended effect of this is to keep rents affordable and provide tenancy agreements lasting for at least one year, with rent rises capped, so that residents can plan for the future.

Investors and developers could apply for funds from the government to help with the initial costs to encourage more build to rent homes being built and boost the supply of affordable housing.

House building has been a priority for the UK for a while, especially as the short supply is only pushing rent costs higher, so build to rent works as a dual measure: encourage more homes to be built and encourage more homes to be rented.

Ultimately, the build to rent scheme is a recognition that simply building homes does not necessarily reduce rent. If landlords and investors, especially those from abroad, can just buy property, and they can still make a profit on the sales even without getting any rental income, then there is not much in the way of an incentive to provide homes for people.

By subsidising some of the initial costs in developing new housing, the government encouraged an emerging sector in the housing market aimed at renting.

What are the benefits of build to rent?

Each housing development has its own set of perks that might be of more value to one family over another. Generally speaking however, the overwhelming majority of homes in a build to rent development must be made available for the sole purpose of rental.

Benefits of new build to rent:

• Made solely for people renting

• In theory, should be cheaper than other private housing developments

• Tenancy agreements include caps on rent rises

• No agency fees as you rent directly from the landlord

• Concierge service and building management to maintain communal areas

Other key benefits include one year tenancy agreements with capped rental increases. Normally, landlords can raise rents significantly, according to what someone else might be willing to pay, pricing out families from continuing to live in their homes.

The rental increase caps are not fully defined, so each development has its own way of doing this. For example, it might be capped according to inflation or by a percentage. Either way, it is certainly an improvement on the standard practice which leaves all of the power in the landlord's hands.

There are also no letting agent fees to pay as build to rent homes allow you to deal directly with the landlord, so renters are likely to find it cheaper even at the start of their tenancy.

Some developments include communal areas, such as workspaces, laundry services and gyms. This allows tenants a chance to get to know each other or host parties and friends irrespective of the size of their home. There's also building management to look after communal areas, as well as a concierge service for added security. And many BTR developments are built with the aim of being as energy efficient as possible. 

Will build to rent homes be cheaper for me?

Build to rent homes are, as the name suggests, newly built properties, which tend to be more expensive than older ones. Generally, the materials used are not a major improvement, if an improvement at all, on what you might get in an older home, but they are new and that unfortunately means that it can generally command a higher rental fee.

Having said that, the main cause of rent rises is more demand than the lack of supply can handle. Build to rent homes aim to boost the supply, which can help lower rent. If there's not enough supply, landlords can get away with charging a higher rent because they will eventually find someone desperate enough to pay it.

When the supply is boosted, landlords have to be more reasonable or risk not having any income at all.

So, on this basis, you should expect to pay less rent in a build to rent home, but only in comparison to a similarly sized new build property.

If you are looking for a home to rent, then a build to rent home might be a good place to look. 

What are the downsides to build to rent?

Build to rent homes are focused on providing new homes and a communal neighbourly setting, which requires having building management to maintain it. That means there is typically a service charge on top of your rent to pay. This is usually calculated per square foot of space you rent - the more you have, the more you pay on your service charge.

Build to rent does not guarantee cheaper rent. It is still dictated by the market's supply and demand, and landlords are only regulated insofar as having to place caps and provide year-long tenancy agreements. This means you might still find the rent to be bad value for money, even if it is relatively cheaper than other homes in the area.

The scheme relies on more affordable housing being built to boost supply and keep prices low. Each developer has their own rules too, so while there might be general rules on rental caps and tenancy agreements, that might not be the case with every build to rent development.

Build to rent properties

According to the British Property Federation, there are currently over 170,000 BTR homes in the pipeline, and Q3 2020 recorded over 50,000 homes already completed. They believe the BTR sector is set to grow and deliver more high quality, professionally managed rental homes across the country.

Home Building Fund (HBF)

The Build to Rent scheme closed in 2016 and has been replaced by the Home Building Fund (HBF). This replacement government scheme continues to provide loan funding to builders, developers, community builders and regeneration specialists to enable them to build more new homes.

The HBF is managed by the Home and Communities Agency, providing funding for public sector development schemes including those for build for rent. This fund continues to support key marginal sectors like the Small and Medium Enterprise developer market and is available nationally, but has an increased focus on investment in areas with the highest affordability issues.

Do your research on local build to rent and HBF schemes and see if the benefits work for you. Nonetheless, the scheme does hint that there is a way that could eventually help the housing market's rising rents to cool down - so it is certainly worth keeping an eye on for the future

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