We are in the midst of a housing crisis and building homes is difficult, but are developers missing out on potential revenue by building homes for the wrong market in the wrong locations? It’s controversial but new research from data-driven business consultancy CACI suggests they are.
CACI findings point towards the industry’s lack of knowledge about the demographics of urban areas which has in some cases created unbalanced communities. The study highlighted that until recently, the industry had only been able to base decisions on market activity, such as how many houses have been built where and at what price. In a housing crisis and an economic background of low interest rates, this has generally worked out well for developers and homes have been sold or rented out.
However, against a tougher economy, more information is needed to create strong, balanced communities while maximising revenue.
But things are changing. The real estate industry is now starting to use data to understand the demographics of urban areas better. This has led to a rise in build-to-rent properties, which offer a new approach to housing. Build-to-rent (BTR) involves building properties specifically for renting rather than selling. It’s becoming increasingly popular as it offers more flexibility compared to traditional buy-to-let investments. BTR offers significant opportunities for developers and investors alike.
However, with more information available through data analysis tools like Acorn, developers can now gain a deeper understanding of demand and audience based on factors like demographics and location. CACI’s analysis showed that homes for affluent groups like “executive wealth” and “career climbers” in urban locations were being overbuilt, while less affluent groups like “poorer pensioners” or “struggling estates” were seeing lower levels of growth.
This creates an opportunity for BTR developers who can target specific groups that are not being catered for by traditional landlords. For example, Derby was identified as a location with potential for premium rental products due to its population of affluent families who may be willing to pay higher rents.
The rise of BTR also addresses affordability concerns in areas where people cannot afford homes but can afford rent. Many urban areas in the south-east and east of England have homes for both sale and rent that the general population cannot afford. BTR offers an alternative for those who want to live in desirable locations but are not yet ready to buy.
Moreover, BTR properties can offer a higher standard of living than traditional rental properties. They often come with amenities like gyms, communal areas, and concierge services, which makes them more appealing to renters.
It’s worth noting that BTR is still a relatively new concept in the UK. Currently, only 2% of homes are classified as BTR properties. However, this figure is expected to rise exponentially in the coming years. According to recent research by Savills, the build-to-rent sector will grow by 25% per year over the next five years. This represents a significant opportunity for developers who can target specific groups that are not being catered for by traditional landlords.
In conclusion, the build-to-rent market is an exciting development in the current economic climate. It offers developers and investors an opportunity to tap into a previously untapped market while also addressing issues of affordability and imbalance in communities.
As data tools become increasingly sophisticated, we can expect more targeted developments that cater specifically to demographic groups’ needs. BTR has already shown significant potential for growth and looks set to play an essential role in solving the UK’s housing crisis.
To discuss opportunities within the build-to-rent sector contact Austin Mooney.