Building Build to Rent

Executive Director Adam Challis discusses the transformation of the UK Build to Rent industry over the last decade and how there’s still room for growth. 

 

It’s no secret that investors want more exposure to the Living sector. It’s also no secret that the market dynamics have been pretty one-sided in favour of more institutional investment. So we shouldn’t be surprised that the UK has rocketed to the top tier in European multifamily investment volumes and some are now struggling with tight yields and pricing. This meant - despite the market tailwinds - volumes in fact fell by 14% last year. Yes - Brexit also had something to do with that, too.

Undeterred, volumes should continue to grow solidly over the medium-term. The reasons will have nothing to do with the strength of demographic tailwinds or urbanisation rates. Don’t get me wrong - both remain hugely important and hugely supportive and will continue to be there.

The Brexit noise in Government will abate somewhat this year, but it would be naïve to think that negotiations will be anything other than a significant distraction for policy teams. This could be viewed as a bad thing for multifamily housing, but with a Government set on the aspirational homeowner as its key policy priority, the lack of attention will in all likelihood mean that the industry can get on with delivery.

Over the past 10 years, the entire UK Build to Rent industry has been non-fictionalised. Developers, supply chains, funders, planners, lawyers, advisors, operators and innovators have coalesced around a largely US-styled asset class and got on to create a pipeline of over 150,000 homes. That is largely despite rather than because of policy.

Let me be absolutely clear, however. The industry has a long way to go on its journey to maturity. Planners think Build to Rent is 'premium' product. Consumers think it's still about exploitation, rather than choice. Developers still - still! - behave as though it’s a land value play rather than a value-generating income play. Operators are still learning about what it means to be truly customer-centric. These are issues that need to be tackled and while I have perhaps been a little unfair to many here, I'm speaking to most in this nascent sector.

So let me come back to the policy point. The lack of attention provides us with breathing space to learn, to grow, to mature. While Berlin and ultimately the German Government mess about with supply destroying rent controls, in the UK we can drive a consensus around rental supply as a force for good. While market actors in New York and San Francisco, Paris and Madrid all grapple with stock revaluations due to tightened rent regulation, in the UK we can use the cover to get our story straight.

Tech innovation that improves quality of life. Check. Advanced manufacturing solutions that de-carbonises new stock, and builds supply chains to reduce the cost of retrofitting old stock. Check. Meaningfully leveraging the new tidal wave of Impact investors that see affordable housing as a big prize on the way towards a dual purpose of driving a commercial return and providing a true social good. Big check.

UK Build to Rent has some growing up to do. The stakes, in housing terms, couldn't be higher. 
Adam Challis
Adam Challis
Executive Director, EMEA Capital Markets Research & Strategy