Build to Rent (BTR) is the umbrella term in the UK market for purpose built, institutionally owned and professionally managed residential property which is rented on the open market (rather than sold).
There are two main types of BTR property:
- 'Multifamily' or 'Build to Rent Apartments', which largely comprises BTR apartments located in urban areas; and
- 'Single Family' or 'Build to Rent Houses' which are BTR houses generally located in suburban areas.
Single Family Housing (SFH) is defined as high quality, 'well located' (i.e. usually in areas with open/green spaces and close to amenities) houses, or, sometimes, low rise flats.
Investment in SFH is growing rapidly, with a recent Savills report outlining that by January 2024, £3.5 billion had been invested in SFH with almost £1.5 billion of that being invested from January to November 2023 alone.
A new industry body for SFH (the UK Single Family Association) was launched on 22 February 2024 and has attracted lots of attention in the sector.
So what is it about SFH in particular that's generating such interest?
'Plugging the Gap'
With higher interest rates affecting mortgage affordability and the ongoing cost-of-living crisis, mortgages are becoming an unrealistic option for buyers meaning demand for rental accommodation is rising faster than supply. At the same time, buy-to-let landlords are being hit with increased finance costs and tax disincentives on their properties which are prompting many to sell up as their investments cease to work for them. This in turn causes a reduced supply in the rental market which, together with increasing demand, drives up rents.
SFH is a product which can help to plug this 'rental gap' as institutional landlords are more able to navigate the current financial uncertainties. Additionally, given demand and a projected increase in long-term renters over time, SFH is viewed as a 'safe bet', particularly as more people are giving up on the idea of home ownership and considering other options. SFH is proving particularly popular with younger occupiers under 45 who have above average income but are nonetheless being increasingly priced out of the home ownership market. Instead, they are looking for alternative quality, well managed, long-term options which offer more permanent communities and are suitable for supporting a family without the pressures of saving for a deposit.
Inclusion of SFH in developments presents an opportunity for investors to offer rental products with longer tenures (due to lower tenant turnaround and higher tenant retention), higher rental income and higher rent collection rates. Tenants 'staying put' is also appealing as this reduces the number of void units which minimises associated income loss.
Investors also appear largely unconcerned that non-recoverable arrears will increase as a result of the Renters Reform Bill principally due to their arrears and resident screening processes.
Senior Living
SFH isn't just for working-age families. The senior living sector is seeing a rise in solely rented schemes both by pure rental operators such as Birchgrove, and operators who traditionally used for-sale models now offering rental options for up to 20-25% of their stock. The level of take-up evidences that the "home-is-your-castle" generation see the benefits of a more flexible option for their active retirement. This may be because they want a quick move, want to preserve their family homes for their children, or simply want to try these operators' offerings without the fuss of conveyancing or paying SDLT.
ESG
Investors' ESG strategies also contribute to the increasing popularity of SFH. They are largely targeting a minimum EPC of 'B' or higher and SFH has an impressive track record of 72% of homes having an EPC of 'B' or above as opposed to 12% for existing private rental dwellings. The opportunity to include amenity spaces and facilities within SFH developments which are designed to encourage social interaction, health and wellbeing of residents also allows sites to better align with such strategies.
De-risking and Diversifying Sites
SFH can be delivered alongside homes for sale as it targets a different area of demand. It therefore contributes towards de-risking sites and accelerating housing delivery, meaning housebuilders can deliver to buyers and investors simultaneously. SFH is also less affected by the seasonal variations in private sales so can help to stabilise development income which is a plus for investors and housebuilders alike.
In addition to the benefits sitting alongside private sale units, SFH sits comfortably alongside other tenures including affordable housing.
Mixed-tenure sites which include affordable products not only further align with investor ESG strategies, but also meet demand from a range of household types, income brackets and age groups meaning different tenures co-exist which promotes a strong sense of community and social cohesion. This engenders numerous further benefits including: access to quality houses for various income levels; enhanced employment and educational prospects; reduced stigma associated with particular areas/tenures along with reduced segregation, crime and antisocial behaviour.
Mixed-tenure sites have the additional benefit of allowing residents to move between tenures as their circumstances change while staying within their community. This further strengthens community ties as residents are able to stay in an area for longer.
Onwards and upwards…
Investors' ambitions in the sector appear to be growing with surveys in late 2023 indicating that 80% of investors are seeking to increase their portfolios to 2,500 homes or more within a five-year timeframe. With demand continuing to increase, delivery accelerating and plenty of new investors joining the party, the future of SFH is looking bright.
