Build to Rent has been the jewel in the crown for UK real estate over recent years. Of the £10bn that was deployed in the UK’s residential sector from Q1-Q3 in 2022, Build to Rent accounted for nearly half of the investment, at £4.9bn, according to data from JLL.
By Barry McKeown, real estate partner and head of Shoosmiths’ Glasgow office
For investors, funders and developers, Build to Rent poses opportunities to tap into real estate returns, but also those associated with the extra facilities and services provided. As an asset class, it remains underpinned by resilient capital values and the long-term returns that can also be realised should an investor choose to break up and sell parts of a portfolio.
It is no surprise then that Build to Rent is the focus of many discussions at MIPIM 2023.
Centrick has already launched a new Build to Rent platform at the conference, with the British Property Federation recently analysing the sector’s growth prospects and predicting that completed Build to Rent homes could increase fivefold to reach 380,000 by 2032.
Much of the conversation around Build to Rent is, however, centred on the expansion of multifamily.
Arguably driving Build to Rent’s meteoric rise, multifamily is seeing the majority of investment and development activity – fuelled by interest from investors and residents for large-scale city-centre Build to Rent schemes – with Savills reporting it making up 11.2% of new housing starts.
While not grabbing nearly as many media headlines, single-family housing (SFH) represents one of the most exciting areas of the Build to Rent market, with significant untapped potential.
But what is SFH and why should those walking Cannes’ La Croisette be talking about it?
Growth of SFH
The single-family housing model operates in a similar way to multifamily Build to Rent. However, rather than largely being apartments in tall developments, it involves single houses – terraced, semi-detached or detached – often located in suburban areas and outside cities.
SFH schemes can be delivered by specialist Build to Rent developers or traditional housebuilders, with 2022 seeing several forward funding agreements agreed by the latter.
There have also been successful examples of SFH-led developer-investor partnerships.
A landmark agreement was struck in 2021 between global asset management firm Aviva Investors and Build to Rent developer Packaged Living to create new SFH homes in the UK.
The partnership, which is targeting an initial portfolio of approximately £200m, announced its first investment in July 2022, with Shoosmiths advising Aviva Investors on the project that will see 195 energy-efficient single-family homes created in the West Midlands.
Jonathon Ivory, Managing Director of Packaged Living, commented at the time: “We believe single-family rental is the next chapter in the evolution of the Build to Rent story and we are really excited to be working with our partners Aviva Investors to prove this concept.”
Sigma Capital is also playing a pivotal role in growing this part of the Build to Rent market – last month announcing plans to deliver 865 new single-family homes in partnership with housebuilder Countryside Partnerships. This follows Sigma already delivering 5,000 rental homes under its Simple Life brand.
One of the main benefits of SFH is that it can help to avoid some of the common fears of entering the rental market. Many of the schemes that have already been delivered or are currently in the pipeline have the backing of specialist developers, institutional investors and the country’s biggest housebuilders.
These market entrances mean that individual private landlords are now competing against organisations with the scale and resources to offer a different level of service to residents.
The focus on quality also applies to the actual properties being brought forward. The partnership between Aviva and Packaged Living is targeting an EPC-A rating for all properties – utilising air source heat pumps, water recycling and electric energy solutions.
The ultimate aim of SFH is to provide the same living experience and standard of product that someone would expect when purchasing a new home in the UK.
There is also a major opportunity for those behind SFH schemes in raising the bar when it comes to factors such as resident response times, repairs and management – criticisms often levelled at landlords in the wider rental sector.
This cannot be guaranteed, of course, but the professional and often institutional businesses now focusing on SFH have the resources and experience to deliver high-quality homes and services. It could be said that the long-term success of the sector hinges on this ability.
One challenge for the Build to Rent sector is the subject of homeownership, which often gets pitted against renting in the UK as the superior option.
This is an unconstructive debate, however. What SFH does demonstrate is the importance of alternative living options. Each route has its own benefits and drawbacks, but what is critical is that people have a choice over how they live and occupy their home.
It is feasible that the SFH model could enable families, couples or individuals to be able to move home and locations without the financial implications of buying and selling a property, while still benefiting from the same quality of housing and services of a certain SFH provider.
The rental model has been embraced in Europe and North America, but there does still seem to be a stigma against it in the UK, despite a systemic shortage of homes being built.
An imbalance in supply and demand is being felt acutely in the rental sector, where data from Zoopla recently revealed that demand is 46% above the five-year average, yet the stock of homes for rent is down 38% in comparison to the five-year average. Causing rents to reach unaffordable levels, its findings reaffirm the need to increase supply – citing this as ‘the primary route to moderating rental growth and boosting quality and choice for renters’.
Whether it be multifamily or SFH, Build to Rent must be seen as complimenting the traditional housing delivery model, rather than being in opposition to it. The decision from a number of UK housebuilders to enter the Build to Rent market only stands to reinforce this point.
Multifamily has shown us what is possible when it comes to attracting record levels of investment and development. The focus, therefore, has to be on replicating this success, and even surpassing it for SFH, beginning right now at MIPIM 2023.