Few will have missed comments by the housing minister at RESI last week that the government seems to be willing to look at all housing tenures to help address the country’s chronic lack of supply.
One such consideration is evolving its starter homes commitment to include the build-to-rent sector (BTR). More than ever, this means institutional investors have a renewed obligation to raise the standards of rental homes in Britain, and to quash the stigma of the renting proposition from the PRS cottage industry once and for all.
Clearly those of us who are serious about a professional sector would like the government’s enthusiasm to be backed by a move to exempt large-scale schemes from the additional 3% stamp duty.
It was fair enough to target second home- owners, but it doesn’t seem right that BTR gets caught within this taxation net when it could play such an important role in helping the government meet its housing targets.
But for an institutional rental sector to be fully welcomed and adopted in the UK, investors need to think about residents.
A focus on fairness and service quality for renters, recognising how people live their lives and modern working trends, will deliver the best returns for residents, the economy and investors.
Renting restricts residents’ choice
At the moment, UK renting accommodation restricts residents’ mobility and choice. For example, the high cost of moving creates captive residents, restricts open market competition and provides little incentive for landlord or agent to provide any service level.
If residents have lower costs of moving, it makes for a more productive Britain. It enables renters to move freely with their jobs without being tied to staying in one place and one house.
There is also a need for planning policy to look at prioritising urban, high-density schemes near transport hubs, employment and related infrastructure. This can reduce commuter time, again making for a more productive workforce.
No occupational security
Cost and flexibility aside, residents are often also fearful of the landlord wanting possession of their home with limited warning, allowing for no occupational security. Rental occupational security should be the same as home ownership.
Many tenants don’t really understand their rights under their contracts and often feel unfairly treated when they lose their deposits. Some don’t even expect to get them back, presuming they will get done over by their landlord.
So how can we make this sector really work for UK renters? Lessons can be learnt from other markets but due to scarcity of land, idiosyncrasies of the planning system and distinct cultural influences, the UK solution will need to be unique.
Rental occupational security should be the same as home ownership
We believe in the need for a new institutional class of specifically designed rental accommodation which, based off fair value market rents, aims to deliver higher quality, customised space, together with a more professional and flexible standard of tenant service.
Providing residents with occupational certainty and flexibility is not at odds with a desire to provide investment returns. Owners and operators who prioritise residents’ needs will be the winners. However, it will require patience and it may take a number of years to establish a significant sector.
If we take the right approach from the outset, service, design and competition will all develop and evolve over the next decade for the benefit of residents.
Now is the time for mainstream investors to act. The more competitive we can make this market, the better and more efficient product we can create.
We need to be ambitious and ingenious; second rate will not suffice. Get it right and the BTR sector will not only make a meaningful contribution to addressing the housing crisis but it will boost the productivity of our cities.
Bill Hughes is head of LGIM Real Assets